49 and need to get the ball rolling

[dobig]

We are 49, no debt, $165,000 cash, $170,000 401k, $120,000 company stock and paid off home($600,000). We've basically ignored retirement planning because it seemed like it would never happen early for us. Like many, we kept ignoring it and then it got to the point where we were too embarrassed to let anyone know our financial situation at this stage in our life and how little we've saved. So many here have been so much more responsible than us.

I receive my pension of $1,200/month and my wife works for one of the big tech companies. We've maxed her 401k(she'll be 50 this year so $25,500) and will start to max her HSA since we finally learned this could be used as part of your retirement planning. Also buy company stock($17k+15% discount). We have an extra $7500/month after monthly expenses of $2,000/month to invest.


We're very frugal but dream of living on the Chesapeake Bay which will cost somewhere between $600,000 - $700,000 and getting something that floats to relax and enjoy the rest of our lives. Doesn't seem realistic and neither does our dream of retiring at 57-58.

Any advice on what should be a realistic expectation for us on when we could retire and what we should be doing now would be greatly appreciated.


As a side note, I really have to stop reading the preferred stock thread. Mulligan has me tempted to get out a no cost cash out refi for our home at 2.875 and put it in some of his utility preferred stocks with dividends over 6%. If it is as easy as it seems I'd imagine everyone would be doing that now.

 

[Midpack]

As you may know from reading here, https://firecalc.com/ is probably the best place to start. It all comes down to 3 factors all entered on the first Start Here tab:

• how long retired (your input),
• how much you expect to spend including taxes and non-annual major expenses, and
• how much of a portfolio you’ll need to provide that at a probability of success you can live with.

Note the tabs across the top of FIRECALC where you can enter pensions, Soc Sec in Other Income, etc. The Not Retired tab may be of interest. In your case you may want to solve for Starting Portfolio Value on the Investigate tab.

 

[DrRoy]

Do Not borrow to invest!! If interest rates were to rise later the value of the preferred shares would fall.

 

[Dtail]

What are your expected expenses in retirement?
What are the expected SS numbers for each of you?
Personally, I would not refi to invest.

 

[dobig]

DrRoy, you're right and we will not roll the dice and borrow to invest. Tempting but we already got crushed when we panic sold a property during Covid and lost $200,000. Cannot absorb another hit like that so we need slow and steady.

 

[dobig]

Dtail, my wife will will get the maximum. I was injured in the military and get a $1250/month pension.


My wife was recently promoted and is eligible to do the deferred comp plan which sounds like something interesting. I believe there's a 3% match and this is a very large tech company so we don't foresee bankruptcy as an issue.

 

[Vacation4us]

I believe the max 401 k contribution for the over 50 crowd is 26k this year.

Borrowing to invest is a recipe for disaster. I personally know someone who did this and it did not end well.

Why do you hold so much cash earning near zero returns? Your employer stock my be a bargain at 15% off but you should definitely sell some and diversify.

Expenses of 2k a month seems extremely low to me when your implied take home pay is 9.5k a month. Can you really save $7500 a month? Have you been doing this?

 

[dobig]

Vacation4us, we're really not sure the best place to park our cash right now.

Our expenses have been $2,000/month for years besides a 2nd home we recently sold and no longer have that payment. We have free gas at our home and our gas royalties pays half our property taxes. We just don't have high expenses.

We will have an additional $200,000 - $250,000 in timber on our property in 10 years according to a forester but we only want to count on that money for an emergency.

And yes, we currently have $7,500/month in left over income after the recent sale of a 2nd home. Have not yet started doing anything with it.

 

[TechLead]

i believe the max 401 k contribution for the over 50 crowd is 26k this year.

usd 63500

 

[Aerides]

I'd also look at something other than company stock to invest in. It's already a big chunk of your assets, and most people can't make fully detached financial decisions about their own company. I think the conventional wisdom is something like no more than 10% of your money in company stock? And most here would advise even less.

Before you start making any more moves, start reading here, focus perhaps on index funds as a good place to start, vs. some stocks someone prefers.

 

[38Chevy454]

Welcome to the forum. You are behind in the retirement savings as you identified, but not as bad as many your age. The paid off home with nice value and modest current savings balance is a good thing. Sure you may need to work past your 57/58 goal if your dream house and location are something you want to have. Staying in your current house seems that you might be able to make it with your potential high income in future 8/9 years. For sure that $165K cash needs to be invested into something to help increase the nest egg beyond the 1-2% it can make as interest. Have you heard the rule of 72? that says you divide 72 by the rate of return and it will give you the time for the savings amount to double in value. For example, if using your $165K, and assuming 7.2% returns, it means you could double that moeny in 10 years. If you used 2% interest, all of a sudden that becomes 36 years! 7.2% is not an unreasonable value for equities; of course that is based on long term stock avg returns and could change in next 8-9 years. I recommend a wide diversified stock fund with dividend reinvestment. Just put it into an account and leave it alone. With your 8-9 year time horizon, I feel equities would be the right investment for that.

I also would caution against too high percentage in your wife's company stock. Find out what the rules are for selling and investing into more diversified investment.


If you can truly save $7K/mo or more from here on out, that is $84K/year and with 8-9 years it can grow to be able to support your goals or get real close. So the key now is buckle down and save like crazy and revisit your goals and investment amounts on an semi or annual basis. Always get the max company match or company discount on stock purchase, that is free money. Just beware of the weighting of that company stock and figure out ways to minimize that by selling and reinvesting into diversified options.

 

[OldShooter]

I'd also look at something other than company stock to invest in. It's already a big chunk of your assets, and most people can't make fully detached financial decisions about their own company. I think the conventional wisdom is something like no more than 10% of your money in company stock? And most here would advise even less. ...

This. Even not considering your employment, the classic trustee "prudent man" rule would say that such a large concentration is not prudent. Would you consider it crazy to own only three stocks in your equity portfolio? I think so. Your roughly 30% concentration is essentially that.

Hopefully the stock is held in a tax sheltered account so you can sell without tax consequences. If not, you will have to work off the position according to a tax strategy. But a quick read of Enron employee history, specifically those who held high % of Enron as retirement savings, should trigger enough paranoia to keep you moving on diversifying.

 

[stephenson]

dobig,

My opinion is that you are far ahead of your peer group - sure, you could have saved more - we all could have.

BUT - you have lots of cash, paid off home, investments in 401s, etc ... I think you have done very well indeed for 49 year old.

Your choice of locations to retire give you a goal statement ... great.

Like others, I would recommend diversification, but I would hold on investing the cash for now - wait for the next market reset - there will be one - yeah, it is sort of market timing. Put the cash in highest rate savings or MMF - perhaps a brokerage account with Fidelity or Schwab - so you can react quickly. If the real estate market was down, I might recommend you consider buying a couple of small, rundown houses in the area you are interested to retiring to ... but, now is probably not the time - unless you stumble on a deal.

 

[dobig]

I'd also look at something other than company stock to invest in. It's already a big chunk of your assets, and most people can't make fully detached financial decisions about their own company. I think the conventional wisdom is something like no more than 10% of your money in company stock? And most here would advise even less.

Before you start making any more moves, start reading here, focus perhaps on index funds as a good place to start, vs. some stocks someone prefers.

Company stock isn't fully vested yet. Next 3 years.

Would something along the lines of Vanguard 500 Index Fund (VFIAX) be a suitable option?

 

[dobig]

38Chevy454, extremely helpful post.


Currently we save around $47,000/year between 401k, HSA and company stock purchases. We have an additional $7,500/month after expenses and could easily put away $5,000 - $6,000/month without feeling any burden. My wife also gets bi yearly bonus though part of that funds 401k and company stock grants.


We can open up another Charles Schwab account and put our extra money into an index fund as was recommended by Aerides if that would be the smart thing to do.


Are some index funds better than others and would we want to possibly look at a couple different funds for diversity?

 

[dobig]

Stephenson, thank you for the advice.


Would you consider a market reset if there's a 10% drop from current levels? 15%?

 

[stephenson]

dobig,

Can your wife take advantage of any non-qualified savings plans at her company?

Can she contribute over the limit of 401K (obviously without matching), but with ability to shift this component to Roth IRA on retirement? (someone check me - I think I got this right)

 

[Aerides]

Company stock isn't fully vested yet. Next 3 years.

Would something along the lines of Vanguard 500 Index Fund (VFIAX) be a suitable option?

Start by looking up "bogle lazy portfolio" and reading there for options.

 

[dobig]

dobig,

Can your wife take advantage of any non-qualified savings plans at her company?

Can she contribute over the limit of 401K (obviously without matching), but with ability to shift this component to Roth IRA on retirement? (someone check me - I think I got this right)

Not sure. Never heard of this.


She did recently become eligible for her company's deferred comp plan which lets her defer 75% of base salary and 100% of bonus and the company also matches 3%. We could defer up to the limits and still live comfortably if that would be a smart thing to do but we've read where some people said not to do that.


Her company is an older $200 billion tech company. Not one of the sexy ones.

 

[OldShooter]

... We can open up another Charles Schwab account and put our extra money into an index fund as was recommended by Aerides if that would be the smart thing to do. ...

Many of us here do exactly that. I think the most common approach for equties is to hold a total US market fund seasoned to taste with a total international market fund. The general recipe here seems to be around 70/30 but it varies from 0 to maybe even 100%.

An S&P 500 fund is a decent surrogate for a total US market fund just because the S&P is about 80% of the market value. But the purist approach (count me as one) is the total market fund.

... Are some index funds better than others

As long as you go for minimum fees (Vanguard, Schwab, Fido, and others) the total market funds are going to be pretty much the same. Any tiny differences will not be predictable.

... and would we want to possibly look at a couple different funds for diversity?

Diversification is sometimes misunderstood. The general idea is to hold a large enough number of stocks so that the zigs and the zags cancel each other out, eliminating what is called "individual issue risk" and leaving only "market risk." A single diversified mutual fund achieves this goal.

Buying two diversified mutual funds holding the same stocks doesn't add anything at all. Buying multiple non-diversified funds (small cap, etc.) is a way of diversifying but if you don't want to be concentrated why buy those funds in the first place?

Here is a book you might enjoy: "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ Bill even gives you a recipe for pumpkin pie.

 

[dobig]

Start by looking up "bogle lazy portfolio" and reading there for options.

With as much catching up as we have to do, would it be better to roll the dice a bit and put a larger percentage into an index fund rather than 40% into a bond fund making 1%?

Seems so counter productive.

 

[stephenson]

dobig,

Deferred comp is usually same as a non-qual plan.

I did this - took the 10 year quarterly disbursement.

 

[OldShooter]

With as much catching up as we have to do, would it be better to roll the dice a bit and put a larger percentage into an index fund rather than 40% into a bond fund making 1%?

Seems so counter productive.

Nobody can answer that for you.

You have maybe 10 years to retirement. In my book that is at the beginning of a "long term investing" timeframe. Here is a chart that gives you an historical look at various investing timeframes:

​

This one is up to date for 1H20. I got it at an investment committee briefing a couple of weeks ago.

DW and I were nearly 100% equities until two or three years before we retired. That is not something that everyone would be comfortable with.

 

[Aerides]

With as much catching up as we have to do, would it be better to roll the dice a bit and put a larger percentage into an index fund rather than 40% into a bond fund making 1%?

Seems so counter productive.

You won't get all the answers in this thread, that's where your homework, reading, and application to today and your personal situation will all come into play.

 

[38Chevy454]

With as much catching up as we have to do, would it be better to roll the dice a bit and put a larger percentage into an index fund rather than 40% into a bond fund making 1%?

Seems so counter productive.

It also has to do with your risk tolerance. If you can just invest and leave it without panic and selling when it goes down, that is good and what you want to train yourself to do. In general terms, having less equities and more fixed income is desired by those with lower risk tolerance. It is especially important to not react to daily or weekly volatility. Learn to step back and take a longer timeframe viewpoint. As OldShooter's chart shows, the short term volatility is always going to be higher than longer term.
One point, understand the difference between risk and volatility. They are not the same and they do not necessarily correlate to each other. Another point to understand, higher risk does not necessarily mean higher returns either. You are doing good to get on the E-R forum here. Read a bunch before making any decisions. The best investment advice you can get is to educate yourself and learn the terms and processes. A self directed portfolio is very possible, and can save you a lot over the longer term. Hang around, read a bunch of the posts, and you can develop the investment knowledge to take control of your investment plan and strategy.
To answer your question, I would consider your timeframe as longer term and should bias toward higher equities vs fixed income for now. I was 100% equities until a couple years before retiring. I now target 70/30 asset allocation, although it ihas run up higher equities recently and letting that ride for now since there is not (IMHO) as good of choices in the fixed income side currently.