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Author: purplebutterfly Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: Retirement funding opinions wanted Date: 11/8/2007 1:11 PM
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Hi all. Newbie here posting but I have been reading up.

I make 40,000-50,000 dollars a year depending on overtime as I am a hourly employee. I currently save 20 percent of my income for retirement. 10 percent in my companies 401k plan (company match is 5 percent) and 10 percent in my companies stock which I can buy at a discount. I have 70,000 in my 401K and 80,000 dollars worth of my companies stock. I also have 18,000 in short term CD's and 5,000 in liquid cash. I have a 80,000 fixed rate mortage,I have no credit card debt and my car is paid off. I have self directed myself and everything I have for retirement is in agressive funds/company stock which I willingly did knowing the risks. . I am however approaching 45 years old and that was my magic number to make sure I pulled back that approach and started to tread a little more cautiously.

Assuming the 20 percent level of savings stays the same how would you change things? I have condidered alot of options. One that make sense to me is taking my 401K and stock purchase both down to 5 percent which would give me enough to start fully funding a Roth which I don't have.

Any opinions/options out there for me?

Thanks in advance. PB
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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 60079 of 75381
Subject: Re: Retirement funding opinions wanted Date: 11/8/2007 1:24 PM
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I also have 18,000 in short term CD's and 5,000 in liquid cash. I have a 80,000 fixed rate mortage,I have no credit card debt and my car is paid off. I have self directed myself and everything I have for retirement is in agressive funds/company stock which I willingly did knowing the risks.

You don't sound all that aggressive to me, what with $23,000 in cash equivalents. Why not just use some of your cash to buy a Roth for the present, or even for the next few years? Once you reduce the cash a bit, then it makes sense to reduce the 401K to 5%, but if you are getting a really good price on the company stock, why mess with a good deal? You know that you will have to pay taxes on the amount you take for the Roth, I am sure.

What are your "aggressive" funds? At your age and your state of preparedness, you shouldn't have to roll the dice. Just solid investments should put you in a very good position come retirement.

How long do you have to hold the company stock? I have never been one to put too many eggs into one basket. The same thing that could affect your job could also affect the stock. With almost 50% of your assets in a single stock, you need to diversify, if possible.

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Author: Hohum77 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 60080 of 75381
Subject: Re: Retirement funding opinions wanted Date: 11/8/2007 2:33 PM
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I make 40,000-50,000 dollars a year depending on overtime as I am a hourly employee. I currently save 20 percent of my income for retirement. 10 percent in my companies 401k plan (company match is 5 percent) and 10 percent in my companies stock which I can buy at a discount. I have 70,000 in my 401K and 80,000 dollars worth of my companies stock. I also have 18,000 in short term CD's and 5,000 in liquid cash. I have a 80,000 fixed rate mortage,I have no credit card debt and my car is paid off.

Welcome PurpleButterfly!


Glad to hear you have a 401k retirement plan and are contributing to it. Glad to hear you are also using some of your money to buy company stock, but that is also where I have some concern. In addition to your annual income being based on the company, more than half your retirement savings are riding on the same horse. I am sure there are hundreds of company horror stories, but I will just use Enron, as a reminder of the dangers of such heavy portfolio concentration plans.

Remember the Roth account is funded with after-tax money. That said, it is probably not a bad investment idea, though I would probably fund at least half of it with the short term CD's monies. A second option would be to take the 10% that was going to company stock and redirect it to the Roth. I would keep the 10% going to the 401k, perhaps even bump it up to 15% (Depending on your fund choices).

You mention you have a $80K mortgage- What's you monthly payment? Depending on the payment, you could have anywhere from- enough => too much cushion for your annual living expenses.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 60082 of 75381
Subject: Re: Retirement funding opinions wanted Date: 11/8/2007 6:26 PM
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I'd also be concerned about the amount you have in company stock. It's grown to a large percentage of your total portfolio.

But I also hate to give up the discounted purchase. That's just free money. I'd think about starting a program of regular sales of that stock, with the proceeds going into some other retirement vehicle. Yes, that will trigger some taxes. But that's the cost of rebalancing your retirement portfolio. If you continue buying at a discount, then immediately sell the shares at full value, you'll probably keep the tax hit down.

At your income level, the future benefits of tax-free withdrawals of a Roth aren't that great yet. I'd still like to see the current benefit of tax deferral work for you. So I'd suggest putting the company stock sale proceeds into a traditional IRA, possibly supplemented with some of the cash savings to max out the contributions. You should still be under the income limit to deduct your traditional IRA contributions, so that deduction will help offset the tax hit from selling the company stock.

At any rate, I'd continue to set aside the 20% of your income, no matter what you put it in.

--Peter

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 60084 of 75381
Subject: Re: Retirement funding opinions wanted Date: 11/8/2007 6:29 PM
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...You don't sound all that aggressive to me, what with $23,000 in cash equivalents....

I don't think I agree with that. If the money is basically an emergency fund it is in the right ballpark to have six months take home pay set aside for emergencies. Part of this money could be considered part of a budget for eventually paying cash for you next car.

...company stock...

As already mentioned, having that much is risky, but maybe the deal that you have is worthwhile. Be sure to dig through the details of your plan to find out when you can move some of it to other investments, even if you believe on the company, don't hold too much of it in one stock longer than you have to.

When you eventually retire or change jobs, remember that company stock is the exception to all the rules about how to handle rolling over your retirement account. You will need to get expert tax advice about how to handle the stock then to avoid paying more taxes than you need to.

..approaching 45 years old..... I have 70,000 in my 401K and 80,000 dollars worth of my companies stock....

You have about $150K in invested. If you get historically average returns, then adjusted for inflation, a balanced portfolio will double about every 10 years, which will make your current portfolio worth(in today's dollars) around $300K at 55 and $600K when you are 65.

Congratulations, when you add in your future savings and you are well on the way to having a million dollars(in today's dollars) when your retire !!! There is a popular book called "The Millionaire Next Door" that pretty well fits your situation. If you haven't read it yet I'm sure your local library would have it.

I would have to question if you really need to be excessively aggressive with your investments since you are currently doing pretty good already.

...Any opinions/options out there for me?...

You might want to consider if there is some enjoyable work or business you could do on the side to bring in a bit more income. If you can earn and save $100 per month that is over a thousand dollars per year and would noticeably increase your current $8,000 to $10,000 saving rate.

If you could continue part time work after you retire, then even just having a couple of hundred dollars per month income makes a huge difference in your draw down rate and might allow you to retire early. As rule of thumb, when you retire, you can withdraw 4% of a balanced portfolio each years and still be considered to withdrawing it at a "safe withdrawal rate(SWR)". This means that when you retire, if you have $4,000 income per years from a sideline, than your retirement portfolio can be about $100,000 less. (This is very roughly speaking lots has been written about this.)

Just be careful, the mistake that some people make is to try to commit too much time to a part time job or business and they get burned out. Maybe 5 to 10 hours a month is enough to make a difference. If you are selective about what you do you could actually get paid for doing something that you enjoy. For example I know someone is a sports fan that umpires softball games, the money isn't fantastic but he enjoys going it and he gets some exercise at the same time.

Greg

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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 60089 of 75381
Subject: Re: Retirement funding opinions wanted Date: 11/8/2007 9:38 PM
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Greg: You have about $150K in invested. If you get historically average returns, then adjusted for inflation, a balanced portfolio will double about every 10 years, which will make your current portfolio worth(in today's dollars) around $300K at 55 and $600K when you are 65.

Yes, but ...

The historical return is much higher than the 7.2% required to double in ten years. A 10% return will double in 7.2 years, quadruple in 14.4 years, so the $600K mark should be reached before the 60th birthday. BUT! He is still investing $8,000-10,000 a year. That will also compound nicely. Mr. (or Ms.) Butterfly will likely be a millionaire when he retires.

cliff
... Keep it up, Butterfly!

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Author: purplebutterfly Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 60096 of 75381
Subject: Re: Retirement funding opinions wanted Date: 11/9/2007 8:04 AM
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>>Why not just use some of your cash to buy a Roth for the present, or even for the next few years? <<

The cash is really something I need. Some remodeling, a vacation, future car purchase and emergency fund.

>>What are your "aggressive" funds? <<

Putnam Int POVSX
William Blair Growth WBIGX
Fidelity Magellan FMAGX
Janus Research JAMRX

other available choices include
Drefus Bond MArket DBMIX
American Funds American Balance RLBCX
MFS Value MEIAX
Baron Small Cap BSCFX
Franklin Small Mid Cap Growth FRSGX
Franklin Balance FRBSX
Royce Opportunity RYOFX
Comerica 500 Stock index
Comerica destination Funds 2015,2025,2035,2045

Its hard to know..

>>Welcome PurpleButterfly!<<

Thank you. I agree as I go forward I have to much in one basket my earnings and company stock. My stock purchase plan is a good one and I love owning my companies stock.

>>You mention you have a $80K mortgage- What's you monthly payment? <<

payment including a accelerated payment on principal to reduce mortage from 30 to 22 years, condo fees, propery taxes and insurance is around 900 a month. I sold stock for my downpayment on my house. That was the origianal plan for the stock. Since I now own the home I have always wanted the stock can be condsidered retirment funds.

>>Congratulations, when you add in your future savings and you are well on the way to having a million dollars(in today's dollars) when your retire !!!<<

Thanks I like to think I am trying to be on right path but it can be confusing.

>>You might want to consider if there is some enjoyable work or business you could do on the side to bring in a bit more income.<<

The most effective way to do that is volunteer to work OT. But I am getting to the point that I consider my time valuable. I do unpaid volunteer work that is rewarding but not compensated.

>>Mr. (or Ms.) Butterfly<<

That would be Ms Butterfly:)

Thanks everyone for taking the time to answer. I appreciate it.
PB

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 60099 of 75381
Subject: Re: Retirement funding opinions wanted Date: 11/9/2007 10:15 AM
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..The historical return is much higher than the 7.2% required to double in ten years. ..

I was assumming about 7.2% return after 3% inflation so my figures were in inflation adjusted numbers.

Greg

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 60108 of 75381
Subject: Re: Retirement funding opinions wanted Date: 11/11/2007 9:43 AM
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The historical return is much higher than the 7.2% required to double in ten years. A 10% return will double in 7.2 years, quadruple in 14.4 years, so the $600K mark should be reached before the 60th birthday. BUT! He is still investing $8,000-10,000 a year. That will also compound nicely. Mr. (or Ms.) Butterfly will likely be a millionaire when he retires.

The key is thinking in inflation-adjusted terms as Watty was. If the real value of your money can double every 10 years, you are doing well...

Acme

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