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Author: DSWard Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75637  
Subject: We're Retiring Date: 7/14/1999 2:58 PM
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OK, we've done lots of homework, read the books, did the workbook, downloaded IRS Pub 590, 575, etc., talked to the company holding the 401k (that was interesting) and have made some decisions. We're rolling the 401k into a self-directed IRA (have already located the discount broker after much research). Have all the instructions from both ends. So now we're down to the wire on where to put the money. We want growth, want to preserve the capital,and will need income starting next year. We're both 54 and the assests are just under 1 million now. We will be taking SEPP (Substantial equal periodic payments)in 2000 (think we have a pretty good understanding of that compex subject). We already know we want a part in Vanguard's S&P 500, and a portion in the foolish 4 (not sure which one or if we should try 2 of the versions). If we go with roughly 1/3 in the Foolish 4 (Rule Maker I think), and perhaps 1/3 in the Rule Breaker, then we still will some funds to place. We looked at the No-Load Index Funds list you guys have and the most astounding one is RYOCX. When I searched for it on your quotes section, it had a sad face. Any comments on any of the above is welcome. Love the site, glad we found it.

PS. Just got our August issue of PC Computing and in an article named "Internet Investing" the Motley fool was referred to as the 'gold standard' for analyst and pundit opinion.

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12169 of 75637
Subject: Re: We're Retiring Date: 7/14/1999 3:14 PM
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Congratulations on your early retirement. It looks like you are well on the way to making the key decisions.

I think you should do your homework and make your own asset allocations (or go see a professional). You are talking big sums that are important to you, and you need to be comfortable with the choices.

And I don't think you need to hurry. If the account you have chosen allows both stocks and mutual funds, you can park your funds in money markets or GNMA's or whatever while you decide.

Good luck and good investing.

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Author: gemini1 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12173 of 75637
Subject: Re: We're Retiring Date: 7/14/1999 3:52 PM
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Hey...
Congrats on hard work and doing your homework..I am planning to retire at about 55 also and hopefully will be in the same monetary situation as you.. I have been very frugal and careful with the bucks. I remember reading somewhere about the "rule of twenty" somewhere here at the Fool which involves how much to take over a period of time in order to preserve captial and keep your assets growing ...This may help you out. I'll try to find it and post it for you.
good luck and stay Foolish!
debbie

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Author: moseykitty One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12177 of 75637
Subject: Re: We're Retiring Date: 7/14/1999 4:46 PM
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We already know we want a part in Vanguard's S&P 500,

***

An alternative with a bit broader diversification would be the Vanguard Total Stock Market Portfolio.

What about Bonds?

It would seem wise to put a couple/few years worth of money in a good short-term investment like the Vanguard Short Term Bond Portfolio.

Consider Vanguard Total Bond Market Portfolio for the other bond assets, and the Vanguard Total Internation al Portfolio for foreign.





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Author: tonyw44 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12180 of 75637
Subject: Re: We're Retiring Date: 7/14/1999 5:29 PM
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I would put a portion (say around one year's worth of expenses) into an ultra short bond fund like Strong Advantage. You'll get a little bit more yield with very little volatility.

I'd also put a portion of your assets (around 40 percent of what is left) into a good, solid, high quality bond fund. I'd hold 30 percent of your assets in a large cap stock fund, and I think that an index fund would be totally appropriate here.

The remainder of the money I would put in a growth and income fund. Here, you get the best of both worlds -- growth and income. The dividends will give you some current income, and the growth portion will give you some capital appreciation.

One thing I would no longer do is put your money into international or small cap funds. Those are great if you're like me, 30 years old with forever to go before you retire, but once you actually retire, it's a little different.



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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12183 of 75637
Subject: Re: We're Retiring Date: 7/14/1999 9:03 PM
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54? And retiring? That means you could live another 40 YEARS. A WHOLE NOTHER LIFETIME (more or less). Therefore, stocks are the place to be to fight the greatest enemy of your retirement, inflation. Read over the various mechanical screens here and use the ones that you understand and feel comfortable with (read, can sleep at night). For those short term needs, like the next 1-2 years living expenses, nothing beats a money market fund. Many people suggest bonds or bond funds, but they can loose money as well. It would hurt to be counting on that money just to see some of the principle disappear right before needing it (learned that leason the hard way). That extra 1% or so isn't worth the risk, IMHO.

JLC

P.S. don't forget that four letter word WORK. It'll keep you active. Besides, it not work if you enjoy doing it.


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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12184 of 75637
Subject: Re: We're Retiring Date: 7/14/1999 9:23 PM
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JLC writes,

For those short term needs, like the next 1-2 years living expenses, nothing beats a money market fund. Many people suggest bonds or bond funds, but they can loose money as well.

That's certainly true of bond funds, corporate or municipal bonds, or US Treasury securities if you sell before maturity.

If you hold an individual US Treasury security to maturity, you are guaranteed the interest plus return of your principal. I use a laddered portfolio of US Treasury notes and CDs (whichever offers the highest interest rate when it's time to buy) to hold 5 year's worth of living expenses. I have one year's expenses worth of Treasuries maturing each year. The last 5 yr CD I bought had an APY of 6.75% (a full 200 basis points over what I'm getting in a money market fund.)

I believe this is a very effective strategy to boost the returns on your fixed income assets with no risk of loss.

intercst

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Author: TheBadger Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12188 of 75637
Subject: Re: We're Retiring Date: 7/14/1999 10:28 PM
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You wrote in part: "We will be taking SEPP (Substantial equal periodic payments)in 2000 (think we have a pretty good understanding of that compex subject)."

IMHO, be VERY careful. Unless one of you is a trained accountant or benefits lawyer; you are treading in very dangerous country. The biggest dangers are twofold:

1. Once you start SEPP's you can not stop without incurring retroactive application of the 10% penalty.

2. It is very easy to make computational errors or assumption errors without knowing it; then, if ever audited your SEPP's will be disallowed & penalties invoked.

Please seek professional help.

TheBadger.



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Author: vargaj Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12200 of 75637
Subject: Re: We're Retiring Date: 7/15/1999 11:09 AM
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In adition to Badger's comments, I hope that you DID NOT overlook the fact that a 401k does not require SEPP and can be drawn, penalty free, at any rat,e starting at age 55. By rolling over to an IRA, you give that up.

Joe Varga

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Author: galeno Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12206 of 75637
Subject: Re: We're Retiring Date: 7/15/1999 1:01 PM
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I've been retired for 4 years. I'm 41. I can just tell you what I do.

I took my nest-egg amount and divided it by 30 to give me my begining monthly draw. Next, I took that quotient and multiplied it by 5. I placed that amount in a MMF. The portfolio looks like this: 17% MMF and 83% stocks.

For the stock portion, I'll tell you what I do. The Foolish Workshop Board's (FWB) best risk-adjusted combination portfolio is the 12 or 15 stock RKE combination. FYI, R=F4-RP, K=KeystoneEPS, and E=PEG.

Over the last 12 years, the 12 stock version of RKE has returned 38% with an eye-popping Kelly ratio (risk measurement) of 8. Another FWB combination portfolio that has caught my eye is the 8 to 10 stock KE combo. The KE combo has returned a shade over 45% over the last 12 years with a Kelly ratio of 5.

For comparison's sake, R (Foolish Four)has returned around 22% over the last 12 years with a Kelly ratio of 5.

I'm seriously looking into trading my 12 stock RKE combo for the 8 stock KE port. If I do this, I'll do it in January.

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Author: galeno Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12207 of 75637
Subject: Re: We're Retiring Date: 7/15/1999 1:03 PM
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<<I took my nest-egg amount and divided it by 30 to give me my begining monthly draw. Next, I took that quotient and multiplied it by 5. I placed that amount in a MMF. The portfolio looks like this: 17% MMF and 83% stocks.>>

Correction: divide your nest-egg by 30 to give you your yearly draw. Divide again by 12 to give you the monthly draw.

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Author: BluesH One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12230 of 75637
Subject: Re: We're Retiring Date: 7/15/1999 7:27 PM
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In adition to Badger's comments, I hope that you DID NOT overlook the fact that a 401k does not require SEPP and can be drawn, penalty free, at any rate starting at age 55. By rolling over to an IRA, you give that up.

I've seen others in this forum state that 401Ks can be withdrawn penalty free starting at age 55. In anticipation of retiring in the next 2 years (I'm currently 47), I just sent email to Fidelity, the holders of my 403(b) (non-profit equivalent of 401(k), but I think the rules in this regard are the same). Their response is that if you separate service at or after age 55, you can indeed make withdrawls penalty free. But if you separate service before age 55, then (absent exceptions such as SEPP) the minimum age for penalty free withdrawls is still 59 1/2.

TMF Pixy (or anyone else), can you confirm or deny their information? If true, I see no reason to leave my 403(b) with them after I retire. Thanks.

Bob H.


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Author: washu Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12235 of 75637
Subject: Re: We're Retiring Date: 7/15/1999 7:44 PM
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<< If we go with roughly 1/3 in the Foolish 4 (Rule Maker I think), and perhaps 1/3 in the Rule Breaker, then we still will some funds to place. >>

Just the standard question if you've invested in high-risk stocks before.

I highly encourage you to take galeno's advice. (Give yourself maybe a year to learn the stuff.) The Workshop Models are a minor godsend! (:


Washu! ^O^

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12256 of 75637
Subject: Re: We're Retiring Date: 7/16/1999 8:47 AM
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Greetings, Bob H., and welcome. You wrote:

<<I've seen others in this forum state that 401Ks can be withdrawn penalty free starting at age 55. In anticipation of retiring in the next 2 years (I'm currently 47), I just sent email to Fidelity, the holders of my 403(b) (non-profit equivalent of 401(k), but I think the rules in this regard are the same). Their response is that if you separate service at or after age 55, you can indeed make withdrawls penalty free. But if you separate service before age 55, then (absent exceptions such as SEPP) the minimum age for penalty free withdrawls is still 59 1/2.

TMF Pixy (or anyone else), can you confirm or deny their information?>>


In IRS Notice 87-13 the Infernal (sic) Revenue Service says the plan participant must separate from service during or after the year the employee attains age 55 to take plan money without penalty. Thus, what Fidelity told you is correct. This is true of 401k plans as well as 403b plans. To use this exception you must be on the job in the year you attain age 55. Otherwise the only way the early withdrawal penalty may be avoided is through an annuity payment like that established by SEPP.

Regards..Pixy

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Author: BluesH One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12264 of 75637
Subject: Re: We're Retiring Date: 7/16/1999 12:00 PM
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In IRS Notice 87-13 the Infernal (sic) Revenue Service says the plan participant must separate from service during or after the year the employee attains age 55 to take plan money without penalty. Thus, what Fidelity told you is correct.

Thanks for the confirmation, Pixy. I think my misperception about the rule must be widespread. As I said, I've seen advice given numerous times in this forum that essentially says "Don't roll over your 401k to an IRA at retirement, because you can withdraw from your 401k at age 55 rather than age 59 1/2." For those of us planning to retire before age 55, this isn't true.

In my case, the 403b plan only allows investment in mutual funds. Although funds such as Magellan have performed well for me, I'd prefer to take control in a self-directed IRA at retirement to invest directly in stocks. You've just clinched the fact that I want to do the rollover at retirement. Thanks again.

Bob H.



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Author: 39dopey One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12266 of 75637
Subject: Re: We're Retiring Date: 7/16/1999 1:19 PM
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Pixy said:

In IRS Notice 87-13 the Infernal (sic) Revenue Service says the plan participant must separate from service during or after the year the employee attains age 55 to take plan money without penalty. Thus, what Fidelity told you is correct. This is true of 401k plans as well as 403b plans. To use this exception you must be on the job in the year you attain age 55. Otherwise the only way the early withdrawal penalty may be avoided is through an annuity payment like that established by SEPP.

My plan was to retire well before 55 on non-sheltered investments. At 55 I was going to start drawing on my 403(b), but it looks like I either (1) have to rejoin the work force for long enough to roll my old 403(b) into a new one, then retire again, or (2) take loans until I can draw on either the 403(b) or the IRA, or (3) ... yuck ... roll everything into an IRA and try the 72t routine to age 59 1/2. These little details are annoying! Still, we have to follow the rules. Can anyone confirm whether the above options are okay with respect to the law?

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12293 of 75637
Subject: Re: We're Retiring Date: 7/17/1999 10:04 AM
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Greetings, 39dopey, and welcome. You asked:

<<My plan was to retire well before 55 on non-sheltered investments. At 55 I was going to start drawing on my 403(b), but it looks like I either (1) have to rejoin the work force for long enough to roll my old 403(b) into a new one, then retire again, or (2) take loans until I can draw on either the 403(b) or the IRA, or (3) ... yuck ... roll everything into an IRA and try the 72t routine to age 59 1/2. These little details are annoying! Still, we have to follow the rules. Can anyone confirm whether the above options are okay with respect to the law?>>

Your understanding of your options is correct.

Regards..Pixy

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Author: DesertBillG Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12471 of 75637
Subject: Re: We're Retiring Date: 7/22/1999 2:54 PM
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You should seriously consider not rolling your 401k into any type of IRA.

The law allows people who separate from their employer (i.e. retire) after the age of 55 (actually anytime starting with the year you turn 55) to withdraw any amount at any time from your 401k. You only have to pay income taxes. The only caveat is that the 401k plan must allow this. Most do.

If you roll the money into any type of IRA, you will lose this important benefit.

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Author: DownwardSpiral One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12474 of 75637
Subject: Re: We're Retiring Date: 7/22/1999 3:22 PM
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39dopey asked, in part:
<<... roll everything into an IRA and try the 72t routine to age 59 1/2. >>

Remember that you can have more than 1 IRA, and distribute each differently. So, $300,000 could be split into 3 IRAs, say. 72t one of them. Two years later, a little more income is needed. Maybe 72t another, or even split it into again a smaller amout to 72t.

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