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Subject:  Re: question for TMFPixy Date:  12/14/2000  9:48 AM
Author:  rkmacdonald Number:  26603 of 95777

Author: 1poorguy Date: 12/12/00 1:33 AM Number: 26555

What about the situation where a person is already old, and was only able to save a little until recently? Consider someone in their late 60's, still working (decent salary), has some investments (including IRA's) but not enough, and can't depend on any sort of pension.

As Pixy said, there is no magic here. You're only option is to save as much as possible from every paycheck.

Clearly, aggressive investing brings excessive risk (not good for someone looking at retiring in 5 years or so). On the other hand, conservative investing has less reward potential, and likely won't bring sufficient returns in such a short time. It's a Catch-22.

You're right; it is a catch-22. However, don't fall into the trap of attempting high risk investments just to 'catch up'. Any money that you need within three to five years must be protected. If you put this under five year short term money in the stock market, you are taking a serious risk. It is better to put it into high grade bonds, CDs, or a money market account. The goal should be to accumulate three to five years of living expenses in a safe place.

I'm looking for general ideas/thoughts/principles for this kind of situation. Hopefully there are more options than social security!

Note that social security might greatly reduce the amount necessary in this three to five year cash reserve. Once the reserve is in place, additional funds can be invested more agressively if it is compatible with your personality. I would recommend large cap stocks or stock funds like the S&P500 Index. Other conservative equity choices might be utilities or REITs.

Being a younger person (OK...middle aged...) with at least 20 years ahead of me before I need to tap investment money, I've never given it much thought. I'm planning on a future for me where social security is dead. But I do know two people who approximately fit the above scenario, and I'm sure there are more out there.

With 20 years ahead of you, you can be fairly agressive, and most of your money should be in stocks or stock funds, since you won't need it within three to five years. The thing you are trying to protect yourself against is a bad recession just as you need to start taking money out of your portfolio. If you are forced to withdraw money when your portfolio is down, it causes the percentage withdrawal to be much higher than planned, and your portfolio then needs to have much higher returns to replace it. Three to five years expenses in money markets can weather most recessions. When you get within five years of retirement, you should begin building your cash reserve.

Also, it is fine to plan for the demise of social security, but I believe that this is one sacred cow that's not going to go away. How could it? People are depending on it, and they are electing politicians who will protect it. To a politician, it would be instant political suicide to even hint that you wanted to get rid of it.

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