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Hello fellow fools,
I am un able to find good advice concerning using the 401K effectivly during a forced early retirement at 53 years of age. So I came up with a plan that is working well for the past 4 years and would like to share with others in the same situation.
My situation is just the wife and I and 8 grand kids that grandma can't stop spoiling, and all credit cards are gone. It is a pay as I go or we do not get it plan.

I must be a king of fools as I do not follow the mainstream advice of having only 10% of savings in the stock market when you actually retire. And the rest in CDs or bonds or all the other SAFE havens in the savings world. However we must be educated enough to be relaxed in retirement, not stressed out!

1
Pay off all credit cards, but do not bust the bank by cashing out ALL your stock holdings.
Stay invested in stocks as though your still working, because you are, only now your career has changed to being a broker.

2
Total up all your known bills for a year along with your best guess for variable bills, and place this amount into funds and other easy access saving tools.
You will be drawing from this account to pay bills and have a little fun. The amount left in stocks is your FUTURE income, a pay raise sort of. The more left in stocks the better.

3
Do not let the 10% penalty for early withdrawl scare you as you will make that, plus more back in the stocks. I say this on the basis that we may not have a choice of loosing the home or loosing just 10%. I choose the later.

4
Long term is the only term. Some say 5 years, unfortunatly we may have to make it only 1 year. That can be minimized by simply not selling all of the stocks of a single company to fund your yearly needs budget. Spread it across the board, but watch out for the XDIV dates, do not cheat yourself of by not collecting the dividend.

In summary my bills are paid, I am able to live off the profits and dividends, have fun mini vacations, and I did not have to loose my home. No I am not a millionair, just a working fool that was forced to retire was too soon.
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No. of Recommendations: 5
Welcome dbranch56. We're glad you could join us.

Note there are both 401k boards (Foolish 401ks) and Retirement Investing boards in Fooldom. They tend to be monitored by serious investors. I think you will get more informed responses there. Retired Fools board tends to be a bit more social.

Sounds like you are well on your way to a well planned (and well earned) retirement. Good for you.

Let me offer a few comments--

I must be a king of fools as I do not follow the mainstream advice of having only 10% of savings in the stock market when you actually retire.

I'd be very surprised if you found this advice posted on Motley Fool. The wisdom here is that most of us expect to be retired for 30 yrs or more. Hence, you need the better returns expected from equity investment to keep up with inflation and make your funds last throughout your retirement.

Traditional TMF advice for those retired on investment income is 1) limit your annual withdrawals to 4% of net investable assets to make your funds last 30 years. And 2) protect your stock investments from forced sales in a down market by keeping 5 yrs of living expenses in a laddered maturity bond portfolio. That implies a max of 20% of assets in fixed incomes and if you are far below 4%, it can be much smaller.

Of course all of this has to be adjusted for your income needs and your risk tolerance. One size does not fit all. It needs to be customized to your comfort level. But high equity investments are generally better if you know how to manage them and are prepared to accept the risks involved.

Do not let the 10% penalty for early withdrawal scare you

Fools would usually suggest your set up a 72t distribution plan. This allows you to take penalty free distributions from your 401k or IRA before age 59-1/2 on a schedule calculated to last your life expectancy. That usually means they allow abt 3% of your funds per year. Once begun, you must continue for the longer of 5 yr or to age 59-1/2. And bad things can happen if your accounts runs out of funds and cannot make the distributions. You get assessed a penalty for all previous distributions. (Or a professional can help you cancel the plan, but the paperwork is not easy.) But its best to keep your investments conservative.

Total up all your known bills for a year along with your best guess for variable bills, and place this amount into funds and other easy access saving tools.

Yes, after your children are on their own, you should be able to get good numbers on your living expenses from your checking account and credit card records. You know your income and take home. To double check, how much of your money can you account for? Where does it go? Then what will change in retirement. Don't forget health insurance. Medicare. etc etc.

Younger couples often use their current salary as a basis for early estimates. That can be a good start in that situation. But 50+ families usually are paying into 401k and IRAs planning for retirement. Those needs cease when you retire.

Sounds like your system works for you. But if you have questions or want to discuss details, feel free to post 'em.
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all credit cards are gone. It is a pay as I go or we do not get it plan.

Not charging more than you can pay off at the end of the month is very wise at any age or employment status. Or did you mean that you canceled all of your cards, which seems unwise, or paid off your CC debt?

When you can no longer work, it's much harder to make up for overspending. People with little in the way of retirement resources other than pension/Social Security can be in a pickle when an unavoidable large expense comes along, such as a new roof or a lot of dental work. Some folks have to charge up credit cards or make other arrangement to pay over time if there's no place else to get the funds.

I do not follow the mainstream advice of having only 10% of savings in the stock market when you actually retire.

That is not mainstream advice. But my elderly mother is doing fine with 25% in the stock market, the rest in bonds and CDs. That was mainstream advice when she retired over 20 years ago and many retirees are doing it now, but I can't recall reading or hearing about the 10% figure.

I did not have to loose my home.

I'm happy for you!

But for some people, home ownership doesn't work well in old age when it's often harder to stay on top of maintenance and bills (and investments).

We're retired and don;t have to lose our home either, but we still may sell it. It's bigger than we need. Not having a mortgage doesn't make it free. We still have property taxes, homeowners insurance, electric bills, landscapers, maintenance, repairs--all of which cost more the bigger the property.
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dbranch56:

I do not follow the mainstream advice of having only 10% of savings in the stock market when you actually retire. And the rest in CDs or bonds or all the other SAFE havens in the savings world.

I do not, either. I have been managing my own 401k (rolled over into an IRA I manage on my own) for a couple of decades. By and large, we've done okay with it, except, of course, for major whacks like 2008. Even so, we're doing okay.

However, I have had to watch what my IRA money is invested in. Some is in dividend-paying equities (several of those can give you much more than CD's, for example), and some is shifted now and then among some perhaps "adventurous" stocks that I have carefully scouted out. Nothing is in bonds, per se. Very little is in mutual funds because they are too slow to react to changes, IMHO.

4%? No. Sometimes I take nothing; other times, if needed, I may take more. I can take whatever I want, whenever I want, on 24-hour notice on line, and have it in my checking account the next day -- which has helped sometimes. But that can be a trap, obviously! Be careful!

Watch what you do, do not follow anyone else blindly, and be ready to work at how your money is working for you. Be ready to sometimes (hopefully not too often) bail out of something that goes sour.

Good luck!

Vermonter
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HI,
I AM READING ALL OF THIS AND HAVE QUESTIONS. I HAVE JUST RETIRED. WE HAVE STOCKS, 401K, SMALL ANNUITY = ABOUT $170000. WE OWE MUCH: HOUSE, CARS, CREDIT CARD DEBT. I USUALLY WAIT FOR STOCK MARKET TO GO UP AND WITHDRAW SMALL AMOUNT TO HELP PAY FOR CC DEBT. I AM LOOKING FOR A VEHICLE TO INVEST MY 401K. I WAS GOING TO INCREASE MY ANNUITY. HOWEVER, I CANNOT WAIT TO ANNUITIZE. I NEED AS MUCH AS I CAN GET NOW! THEREFORE, I THINK ANOTHER ANNUITY IS NOT FOR ME BECAUSE OF FEES INVOLVED.
CAN ANYONE GIVE ME INSIGHT AS TO WHERE TO INVEST?
I AM NOT AFRAID OF THE STOCK MARKET. BUT I AM NOT TOO FAMILIAR WITH WITHDRAWAL RULES.I DO BELIEVE I CAN DO BETTER WITH THE STOCK MARKET THAN WITH AN ANNUITY THAT GUARANTEES 4% IF I WAIT TO ANNUITIZE.

ANY IDEAS WOULD BE GREATLY APPRECIATED.
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"HI,
I AM READING ALL OF THIS AND HAVE QUESTIONS. I HAVE JUST RETIRED. WE HAVE STOCKS, 401K, SMALL ANNUITY = ABOUT $170000. WE OWE MUCH: HOUSE, CARS, CREDIT CARD DEBT. I USUALLY WAIT FOR STOCK MARKET TO GO UP AND WITHDRAW SMALL AMOUNT TO HELP PAY FOR CC DEBT. I AM LOOKING FOR A VEHICLE TO INVEST MY 401K. I WAS GOING TO INCREASE MY ANNUITY. HOWEVER, I CANNOT WAIT TO ANNUITIZE. I NEED AS MUCH AS I CAN GET NOW! THEREFORE, I THINK ANOTHER ANNUITY IS NOT FOR ME BECAUSE OF FEES INVOLVED.
CAN ANYONE GIVE ME INSIGHT AS TO WHERE TO INVEST?
I AM NOT AFRAID OF THE STOCK MARKET. BUT I AM NOT TOO FAMILIAR WITH WITHDRAWAL RULES.I DO BELIEVE I CAN DO BETTER WITH THE STOCK MARKET THAN WITH AN ANNUITY THAT GUARANTEES 4% IF I WAIT TO ANNUITIZE.

ANY IDEAS WOULD BE GREATLY APPRECIATED. "


Spend a whole lot less

Pay off all your debt, chop up your credit cards, downsize your house, and get a part time job.

You seem to be in terrible financial shape.

Roll over your 401K to Vanguard or Fidelity, pout 50% in stocks and 50% in US and international bonds, and don't touch it till you get to 66. don't take SS till you are over 66.

SPEND LESS. A LOT LESS. Downsize your life style. You are broke.





t.
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