My situation is a long story so I won't bore you with details however, when it is all said and done, I'm 60, my pension is adequate because I do not have much outstanding debt & I have $150k in my IRA nest egg.Here is my question. Where should I park it for the next 5-7 years, or until I decide to start drawing from it to augment my pension? I understand the risk/reward of investments and at this point, I want it to be available when I need it. Of course, if it grew a little that would be nice as well. I'm interested in your ideas and opinions about options such as Money Market,Bank account, CDs, bonds, T-bills, & TIPS. Thanks in advance.
What is wrong about how it is currently invested?In other words, if what you are doing now is working, do you need to make a change?
Elavats,You did not say if you were currently retired or not so I will assume not.Have you examined your spending/expenses closely? I use this as a first step. If you look at the expense side based upon what you spend now vs what changes might happen in retirement, you will have a much better picture of your income requirement.If the above places your total retirement income over (hopefully well over) your expenses, it would change the need for your savings.Using $150K, the standard 4% rule would make $6,000 available for withdrawal the first year. Using a more conservative 3.5%, the number would be $5,250.If this money is needed for your living expenses, it should be held as cash during the year you need it. The next 4 years worth, $25K to $30K would be in something with lower volatility like and intermediate bond fund/ETF.The beyond 5 year can be a mix of 5 to 10 funds/ETFs that cover the main bases: US large cap, mid cap and small cap stocks and some world/Europe/Asia/South America funds/ETFs.Since you are 5+ years out, I would just put 1 year in the bond portion to start. A year ahead, look at what you have and trim a slice from the stuff that has moved ahead the most and place a second year into the bond bucket. Continue each year until you hit the point where you will need the cash. If the markets are doing well, I take some profits to use for cash and let the rest ride.Once you hit the point where you will need this each year, look at the market conditions. If the stock funds are getting hammered (think 2008), leave them alone and draw your cash from the bonds. You should be able to do that for 4 years without touching the stuff that is beaten down. We made it through the 2007 through 2009 without any required stock sales (we were 90% funding retirement from savings at the time.).Make a plan for yourself that you understand and follow it. Do not panic sell when markets go down. Most times when people do that they miss the swing up and lose money in the process.Gene
You did not say if you were currently retired or not so I will assume not.I would think the thread title gives the answer to that.PSU
PSUEng,Ouch!I guess when I get phone calls between my readin', thinkin' and writin', I might had oughta go back and re-read everthin'!Gene
Gene,Thanks for you informative reply. To clarify my post, I am recently retired and have calculated that my retirement income is well above my expenses; the nest egg is frosting on the cake. Would you still recommend the same strategy? Elavats
Elvats, you say your pension covers your living expenses. What about inflation? Is pension fixed for life? Or can you expect cost of living increases?You will probably be retired for 30 yrs or more. So carefully consider the effects of inflation in your planning. Your cost of living will probably double at least twice during your retirement.With pension covering your expenses you can be a bit more aggressive. That means you can put more into equities. I like the way the economy seems to be recovering with auto sales and home building reviving. That makes index funds look attractive to me. But you will want to keep an eye on things and sell quickly if the market changes for some reason.
Elavats,Thanks for you informative reply. To clarify my post, I am recently retired and have calculated that my retirement income is well above my expenses; the nest egg is frosting on the cake. Would you still recommend the same strategy?Basically, yes.Your investments need to be diversified. Different asset classes by size and geography. Have stock and bond assets.It looks like your cash management will generally revolve around your retirement income.I always maintain a cash cushion in our passbook savings to cover the shortfall between our income and expenses for 6 months plus some extra for emergencies. I also keep some cash in out taxable brokerage. We have near-cash in an IRA annuity that can provide money in 3 market days (21% of our portfolio). (In 8 years, we have not had to use that option.)Our cash cushion serves 2 purposes: Cash for normal expenses and an emergency fund. We have had a number of big expenses(Replace heat pump, replace refrigerator, etc) that we could pay with a card then pay the balance without being required to sell stock.pauleckler mentioned inflation in his response which is always a concern going forward. SSA and most government pensions are adjusted somewhat for inflation but effective inflation for a person can vary from that.If you have excess funds after getting a cash cushion in place, use it to add to funds in your taxable account. (So far, we have lived entirely on our taxable brokerage account.)Time will tell you how the income/expense balance is working and if you need to tap the IRA.Since you mentioned IRA, I will assume traditional not Roth. If that is true, 10 years from now, in the year you turn 70 1/2, you will be taking Mandatory Required Distributions from your traditional IRAs (includes 401k/403b/457b accounts both traditional and Roth, but not Roth IRAs) RMDs normally amount to slightly under 4% each year. This can be used for spending or saving in your taxable account. Under current regs, it can be gifted directly to charity.Based upon the numbers you provided, your taxable income will raise a little with the RMDs but it should not be significant. Depends on your other income, its tax status and amount. You can figure that as you get closer to 70.I have been very(maybe excessively) conservative in our planning for expenses, savings, etc. That has served us very well through the market dips and side-ways trends. It is very reassuring to have a big chunk of money available to use if it is needed. One never knows what the future will bring.Gene
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