No. of Recommendations: 1
<<<I'm 22 and I've been thinking about starting to save for my retirement and I have an idea in my head that I'm not sure will work or not. I'm making about $85K to $90K a year (taxes included). I was wondering if a good idea would be to start putting "most" of that money in a safe mutual fund and by the time I'm 40, I'd have about $1 million. Now, the question is could I live off of the returns I would get and how much (worst case) would I be getting (after taxes and all) with $1 million invested in a very safe mutual fund?>>>

Here is my take on the situation.

#1--pay off all debts. College loans, car loans, credit cards, etc. You didn't mention if you had any of these so that's why I brought it up.

#2--The next thing is to establish an emergency fund of about 6 months living expenses. For you, around $45k. Why so much when you could be investing this money? Assume tomorrow you got in a car wreck. You'd have to replace your car, pay hospital bills, and miss work time. Now assume the day after tomorrow the market crashes. Now you have to raise funds from depressed stock, i.e., selling at a loss. If you have a 6 month emergency fund it should get you through this problem and time to recover and bring us to point 3#.

#3--disability insurance. At your age (assuming without dependents) you are more likely to be disabled than die (life insurance problem). If you're not covered by work or not covered enough, look into it. The reason you need a 6 month ER fund, most disability insurances don't kick in until about 6 months. Some after 3 but paper work lags, etc, make it take a little longer. Also, 3 months pay out more expensive than 6 months. (No I'm not an insurance salesman but I am a highly compensated self employed individual).

#4--now that part you've been waiting for (drum roll please). There is no "safe" mutual fund. The only thing truly safe is U.S. Treasuries and that is only because the U.S. Treasury has never defaulted, yet. But, you need exposure to equities to battle inflation, your worst enemy in an extended retirement. As far as stocks, the easiest and "safest" mutual fund is an S&P Index fund. It matches the markets return without any extra risk (notice I said "extra"). Read through the Foolish Workshop and Mechanical Investing boards or for further ideas about creating your own mutual fund.

#5--a rough estimate on how much you'll need to retire, 20 times current living expenses. Or in your case, about $1.8 million. This conservative figure allows for inflation and longevity in retirement.

I guess that's enough for starters. Good luck.


Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
Live Video Event Monday!
The GP team is hosting a live video event on Monday at 4 p.m. ET. Don't worry if you can't make it — we'll have a replay and a transcript. Click for more!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.