Anyone else retire in 1999/2000?

[Andre1969]

I know there's probably a better way to phrase this, but I've heard that the best way to set up your investments is to have it in three "pots". The first pot is cash or something easily accessible, such as a money market account. This is what you'd actually spend money from. The second pot would be stuff like CDs and such, things that usually earn a bit more than just a savings/MMA account, but are not quite as easily accessible. As these mature, they get cashed in and feed the first pot.

The third pot would be longer-term investments, with more rapid growth and more risk, but these would only be touched when the second pot gets depleted.

If you have enough in each pot, theoretically you shouldn't have to sell your longer-term investments when the prices are down, and would be able to weather the rough spots better.

Of course, having these various pots would always guarantee that several years worth of money would be tied up in lower-yield investments.

 

[cute fuzzy bunny]

But a wuss who sleeps well, unlike certain people who require chemical assistance :.

Swell...a well RESTED wuss!

Hmmmmm. Did you consider your problem might actually be "asset allocation induced insomnia"?

It was worse 20 years ago when I didnt have any money, still pretty lousy 10-12 years ago when I had too much and wasnt investing much...so.......NO!

 

[Nords]

Even with 5 yrs of anticipated income tied up in cash?

Keep in mind that "anticipated income" is just like the mythical "six months' expenses in an emergency fund".

No one loses a job and starts digging into their emergency fund at their current spending rate.  Instead, while the job search revs up, the "spending" part slams to a halt for everything but mortgages, car payments, & food.  So although you may need an emergency fund, even three months' current expenses may last for six months in a period of fiscal austerity.

Same with retirement spending.  NO ONE would whistle through a recession, merrily spending the same amount of money that they just spent during the final year of a bull market.  Instead we'd all start cutting back here & there.  We'd skip our weekly Thai massage, start flying coach again, maybe even delay that second trip to Disneyland. 

So keeping five years' expenses in a money market may be 20% of your investments, but it may take a few years longer to deplete than one might expect.

Speaking of expenses, next time we put a years' expenses in cash

***WARNING*** TH, put down all nasal-aspiration liquids and swallow now.  ***WARNING***

I'm beginning to wonder if we should do it in an I bond instead. 

 

[cute fuzzy bunny]

Ick!

What happens if the CPI publishes below 3% and you start taking on water, skipper?

 

[Nords]

What happens if the CPI publishes below 3% and you start taking on water, skipper?

Yeah, good point.  I knew I'm not a bond investor.

I guess I have interest-rate envy; 5% seemed pretty high a year ago.  Not that there's anything grossly wrong with it today, but I'm going to have to start comparing current rates to the penalty for early cancellation...

 

[cute fuzzy bunny]

5% seemed pretty high a year ago.

Might be a lot less than that http://news.yahoo.com/s/ap/economy

Good News Everyone! Everything stopped getting more expensive last month!

I'm going to have to start comparing current rates to the penalty for early cancellation...

You lose 3 months interest if you sell in the first 5 years AFAIK.

I wouldnt touch the things with an eleven foot pole. I'm sticking with MM's until rates on long cd's peak, and then locking a few of those in.

 

[Andre1969]

Emigrant-direct just bumped up their "American Dream" MMA account to 4.5%. I took out a $5000 I-bond last August, and its rate is currently at 6.93%. I figured I'd just try the I-bond and see what happens, but I'm not going to go hog-wild with them.

 

[Nords]

Might be a lot less than that http://news.yahoo.com/s/ap/economy

Good News Everyone! Everything stopped getting more expensive last month!

You lose 3 months interest if you sell in the first 5 years AFAIK.

I wouldnt touch the things with an eleven foot pole. I'm sticking with MM's until rates on long cd's peak, and then locking a few of those in.

I agree with you but I meant with the CD. We have I & EE bonds in our kid's college account (four years & counting!) but we don't hold bonds in the retirement portfolio.

I think the NFCU CD's early-withdrawal penalty is probably three or six month's interest. Maybe they just forgot to mention the details on their website...

I took out a $5000 I-bond last August, and its rate is currently at 6.93%.  I figured I'd just try the I-bond and see what happens, but I'm not going to go hog-wild with them.

Yeah, it'll be interesting to see what February's inflation data does to the next I bond base rate & interest adjustment. A five-year CD seems to be a better long-term deal... so far.