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I am a new Fool but my wife says I'm just an Old Fool.

I am 54 and plan on retiring at 65. Children will be out of college soon, the house is paid for, and I don't have any debt. I am self-employed and put everything I can into a SEP-IRA.

I presently have about 85k in IRA Bank CD's. I have about 30k in IRA mutual funds (S&P 500 Index), about 40k in non-IRA mutual funds (S&P 500 Index), and about 75k in a mixed bag of stocks (Banks, Utilities, Health Care) that were given/willed to me.

My questions involve the proper "mix" of CD's, Bonds, mutual funds, stocks, etc.

1. What do the "wise ones" suggest as a mix between CD's, bonds, stocks, mutual funds for someone who wants to see their money grow but couldn't bear to have everything he owned riding on the stock market.

2. The stocks are in sound companies, several are in S&P 500, but there are no rockets. Any benefit to selling the stocks and putting them into an Index Fund?

3. Should I consider Bonds (Tax-free or otherwise) in my mix of investments?

4. I have about 60k in one bank stock handed down to me from my grandfather. I don't have any idea of what the capital gains tax would be if I sold it (since the stock was a startup of the bank) but I am sure the tax would be significant. How do I analyze whether or not I should sell them and put them into my Index Fund? This is a small hometown bank and my gut feeling is that it will get gobbled up one of these days by a megabank and the stock may be worth more at that time than it is now.

Thanks in advance to any Fools who might be able to help.
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Warrenps:
Your question is a good one for any financial planner... which is what I'm not.. but..
I can comment but you have forgotten to add what I consider the key issue.. How much($) do you want to have at 65? Plus, how much will you invest each year for 10?
Your current portfolio at 8% compounded would yield approxim. $580K (on weak math but hopefully close)
Not including the 60K from your grandfather..
10 years @ 8%
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I will be adding approximately 10k per year for the next 10 years.

I would like to have about 40k per year in retirement (in today's dollars) when I reach 65 in 11 years.
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1. What do the "wise ones" suggest as a mix between CD's, bonds, stocks, mutual funds for someone who wants to see their money grow but couldn't bear to have everything he owned riding on the stock market.

My calculations are you have 40% in CDs and 60% in stocks. The stocks are in mutual funds and individual issues. 40% Fixed / 60% Stocks is what the "wise ones" would consider a conservative investment mix. Most that I've talked to consider any more in Fixed to be too conservative.

4. I have about 60k in one bank stock handed down to me from my grandfather. I don't have any idea of what the capital gains tax would be if I sold it (since the stock was a startup of the bank) but I am sure the tax would be significant. How do I analyze whether or not I should sell them and put them into my Index Fund? This is a small hometown bank and my gut feeling is that it will get gobbled up one of these days by a megabank and the stock may be worth more at that time than it is now.

If he gave you the shares while alive, your cost basis is his cost basis. If you inherited them, your cost basis is the market value on his date of death.
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Then I see something like this down the road..
You want 40K/yr from 65-85...$40,000 times 20 years =$800,000K..
Your going to have to figure in taxes, both on withdrawals and properties etc..
At 20% rate... you'll need closer to $960,000 saved up..
At 8% ROI, you end up a little short (not including that family stock) at $660,000K..
At 10%-12%, your probably getting closer..
That is do-able, especially since you want to avoid stocks..
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warrenps wrote:
I will be adding approximately 10k per year for the next 10 years.

I would like to have about 40k per year in retirement (in today's dollars) when I reach 65 in 11 years.


This is doable, but just barely, assuming the 40K is before taxes. I did a real quick projection using the following assumptions:

8% return per year until retirement
3% yearly inflation
6% return after retirement
$40K today is equivalent to $55.369K in 11 years
$290K initial investment
$10K per year investment for 11 years
54 Current age
65 Retirement age
85 Age at death

With these numbers, you should have approx $842K at retirement. If you then start withdrawing $55.369K (before taxes) a year and adjust that amount upward for inflation each year, you would run out of money the year you turn 85.

Bear in mind this is a very simple-minded projection and doesn't account for real life. If during any year or stretch of years the return is less than the average 6%, you could be in trouble. It also doesn't take into account any Social Security or pension benefits you may have. And lastly note the withdrawal amount is pre-tax, so you must decide the tax bracket and/or capital gains rate that is appropriate.

A word of caution about your expected withdrawal rate. $55,396 is about 6.5% of $842,000. Lots of dicussion here and other places in the past have suggested/shown this is much too high a withdrawal rate under anything but ideal circumstances which Life never is. The quoted safe figure varies, but seems to be about 4% to 5%. Reading previous messages on this board would provide a wealth of opinions.

Hope this helps.

--DarkOut
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A word of caution about your expected withdrawal rate. $55,396 is about 6.5% of $842,000. Lots of dicussion here and other places in the past have suggested/shown this is much too high a withdrawal rate under anything but ideal circumstances which Life never is. The quoted safe figure varies, but seems to be about 4% to 5%. Reading previous messages on this board would provide a wealth of opinions.

I urge you go to the Retire Early homepage
(http://www.geocities.com/WallStreet/8257/reindex.html)
and check out the article and spreadsheet on Safe Withdrawal Rates. It (along with links) goes into a lot more detail than this thread accounting for real world probablilities of running out of money before running out of heartbeats, given unforseen circumstances. For instance, suppose you're 70% in stocks, and it's 1972, or even better yet, it's 1928.

But don't be discouraged. Two years ago, when I made very optimistic assumptions about withdrawal rates, but had no clue that as an individual, I could control my investments effectively, I figured I'd have to work till I was cold and stiff (twenty to forty years from now). Now it appears a life of leisure is five (optimistically) to ten (pessimistically) years off

Fox
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I am a new Fool but my wife says I'm just an Old Fool.

I am 54 and plan on retiring at 65. Children will be out of
college soon, the house is paid for, and I don't have any debt.
I am self-employed and put everything I can into a SEP-IRA.

I presently have about 85k in IRA Bank CD's. I have about
30k in IRA mutual funds (S&P 500 Index), about 40k in
non-IRA mutual funds (S&P 500 Index), and about 75k in a
mixed bag of stocks (Banks, Utilities, Health Care) that were
given/willed to me.

My questions involve the proper "mix" of CD's, Bonds,
mutual funds, stocks, etc.

1. What do the "wise ones" suggest as a mix between CD's,
bonds, stocks, mutual funds for someone who wants to see
their money grow but couldn't bear to have everything he
owned riding on the stock market.

2. The stocks are in sound companies, several are in S&P
500, but there are no rockets. Any benefit to selling the
stocks and putting them into an Index Fund?

3. Should I consider Bonds (Tax-free or otherwise) in my
mix of investments?

4. I have about 60k in one bank stock handed down to me
from my grandfather. I don't have any idea of what the capital
gains tax would be if I sold it (since the stock was a startup
of the bank) but I am sure the tax would be significant. How
do I analyze whether or not I should sell them and put them
into my Index Fund? This is a small hometown bank and my
gut feeling is that it will get gobbled up one of these days by
a megabank and the stock may be worth more at that time than
it is now.


My first question is do you have an emergency fund. This can be in CD's Money market etc. Assuming yes.

The CD's should be moved to individual corporate bonds (since in IRA tax free bonds should be avoided). If risk is to high look at goverment backed bonds like GINA Mae or Treasury. Note, The only reason for the move is that I am assuming you will get a higher rate of return.

I would lean toward putting the CD's into a stock index fund, balanced fund (bonds and stock) etc. I would want the extra return and would not be too worried about the market risk. You might want to do this with the idea that the 10,000 saved per year is going to go into a CD or bond that will mature 10 years from purchase date. You would spend the money when the bond maturied.

If the bank stock is not growing at least 10% a year consider selling and going into a mutual fund. The max capital gains tax would be 20% of the sale price.

To me it sounds like you are very conservative and therefore mutual funds maybe a better investment than individual stockfor you. You will get more diversification but probably a lower return. May also be easier to sell small parts of the fund in retirement that individual stocks.
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