I am 61, have worked 40 years and plan on retiring in 5 years (but it doesn't look good)
My wife has worked part time for 20 years
Own my home
Have about 250k in 401k and rollover IRA
Most money is in bond funds
Put 7 per cent in of wages in 401k
Fully supporting my 27 old son and help my wife's mother albeit a small amount compared to my son. He will be leaving within a year one way or another. This has been our downfall but it is what it is:(
I can't be sure whether I'll need to start living off the 401k's when/if I retire. We live frugally but trying to live
on SS...
I know bonds are heading south and are not a good place to be. I am getting the urge to gamble a bit and get back into
conservative stock/bond mix funds.
Any advice as to what you would do (other than fall into deep depression)would be appreciated. Thanks in advance.
Comments
There are others far better qualified on this topic than I am, so I'll be brief:
1. Get an idea of what your retirement income will look like. The official Social Security benefits estimator is http://www.socialsecurity.gov/estimator/. I'd look at the likely payout you'll receive by working to 65, 67 and 70. I'd then check T. Rowe Price's Retirement Income Calculator, which will not only give you a decent sense of whether you'll have enough income to meet reasonable needs but will also list alternatives for you.
2. Consider the judgment of the asset allocation professionals. I checked asset allocations for the target-date 2020 funds from Fidelity, T. Rowe Price, TIAA-CREF and Vanguard. Their bond allocations ranged from 23% (Price) to 36% (CREF).
3. Consider the possibility of using a long/short equity fund as a core position. Several offer a decent prospect of achieving the traditional profile of a 60/40 hybrid fund without dependence on bonds. Wrote a bit about them in July with a bit more coming in August.
For what it's worth,
David
I don't consider myself one of the qualified, but I'll give my 2-cents. I don't think getting into a conservative or moderate mutual fund is a gamble, as you called it, at all. In fact being all in bonds is a bigger gamble if you want to stretch your nest egg over the years. If you need to withdraw 3-4% of you nestegg to live on, you will have to have some percentage in equities to have that principle last another 20, 25 or 30 years.
There are some very good conservative or moderate balanced funds. Retirement Target Date funds are an option too. Regarding TRP target funds, you don't have to use the specified retirement date, for example 2020 or 2015. Those may have higher percentages of equities then you are comfortable with. You could use the 2005 fund for example and be 50:50 stocks/bonds - again whatever is in your risk tolerance or comfort zone.
Good luck to you.
I am glad that you phrased it "What would you do?".
In addition to David Snowball's suggestions, I would:
1) Let the 27 year old fend for himself immediately. Let him man up.
2) Boost the retirement savings rate above 7%, to at least 10%.
The best thing to do is to try not to be depressed - while things may be difficult, try to keep your spirits up. Easier said than done, but it's something I've had to try to learn to do at times.
In terms of investments, I actually like health care in a number of ways, from - unfortunately - an increasing amount of illness (obesity, etc) to increasing amounts of people reaching retirement age. You can play this in any number of good HC funds, but some of the duller names are fine and provide a nice income (Abbott/Abbvie, Merck, BMY, Sanofi, Pfizer, etc.)
In terms of l/s, I'd recommend Marketfield, but unfortunately the original shares are long closed (MFLDX). Pimco's L/S fund (PMHDX) has done quite strongly this year after an off first year.
I continue to like FPA Crescent (FPACX) as a balanced US fund and First Eagle Overseas (SGOVX) as a lower-key foreign offering.
Congratulations on your upcoming retirement, and an especial congratulations for embarking on this early planning exercise. The planning will make you a happier and more confident warrior when that critical date ultimately arrives.
The advice already offered by other MFO participants is uniformly excellent. Allow me to add a few not so random elements that I addressed when making my retirement decision about 20 years ago. These are proffered in no special order of importance.
Carefully monitor and record you cost outlays until retirement. This will establish a reliable cost baseline. Some conventional wisdom suggests that you will do fine with about 80% of that baseline. Forgetabout it; that’s overly optimistic. Some expenses will definitely decrease, but others will take up the slack. You seem frugal so there is little room for further economy. Overall, assume your spending will be consistent with the last 5 year period.
Continue your commendable saving plan and increase it if possible. Your projected retirement nest-egg (like 300 K dollars) is nice, but not particularly healthy given that either you or your wife is likely to live for 30 more years. Stretching your portfolio to survive that extended timeframe will demand attention to detail and a flexible withdrawal commitment.
You will definitely need a mix of equity and fixed income holdings in your portfolio. Equities to boost the projected annual returns, and fixed income holdings to reduce portfolio volatility. The higher your anticipated drawdown schedule, the higher will be your need to commit to equity positions. But that does NOT equate into becoming a reckless gambler using highly leveraged products that often lead to financial ruin.
Given current economic conditions, it is unwise to expect a 100 % equity position to deliver returns north of 8 %. Consequently, even a portfolio that is 80 % committed to stocks is likely not to generate returns in excess of a 6.5 % maximum. If you decide that your anticipated withdrawals are north of 5 %, a delay in retirement should be seriously considered.
Historically, Monte Carlo computer simulations suggest annual drawdown rates in the 3 % to 5 % range are likely to result in high portfolio survival probabilities for a 30 year period. The 5 % level is recommended only if the retiree can momentarily downsize his withdrawal rate if the market delivers negative outcomes. For example, a retiree could elect to forgo a cost of living adjustment immediately in the period following a down year.
Over time, I have been a constant advocate for doing Monte Carlo parametric studies to support any investment and retirement decision. I particularly like the Firecalc.com website. I recently documented my assessment of this matter in a MFO posting on retirement planning. Here is the internal MFO link to my submittal:
http://www.mutualfundobserver.com/discussions-3/#/discussion/7029/a-better-retirement-planner
Please examine and deploy the analysis available on Firecalu. Do a few tradeoff studies to explore the portfolio survival probabilities for various scenarios that you get to postulate. It’s a great learning experience.
Costs matter greatly. Use passive Index funds whenever possible. You might benefit from the Lazy portfolios described by Paul Farrell in his MarketWatch column. Here is a Link to the Lazy portfolio options:
http://www.marketwatch.com/lazyportfolio
If you prefer active management, and are still cost containment conscious, you might consider a mix of Vanguard’s Wellington (VWELX) and Wellesley (VWINX) balanced funds, as well as the balanced mutual fund offered by Dodge and Cox (DODBX). These funds have served their clients well over long timeframes.
I hope this truncated summary helps, and I wish you success.
Best Regards.
If you aren't forced to retire and have good health, delay retirement as long as you can stand it, unless you hate what you are doing. (This does require looking at your parents' age of death and habits that contributed to it. If they lived into their 80's with good habits, and you have similar habits, hang in at the workplace. This is really relevant if you have good insurance thru work.)
With a partially supported 26 yo, I favor enforced frugality for your son; but I'm a wimp and this really is a different world for young job seekers than it was 30 to 40 years ago.
A big thanks to all of you!
The only thing I can say especially for someone nearing retirement who is not going to be able to keep DCA'ing monthly in a 401k is to make sure the bonds you are holding are short-term bonds.
Another thing I would say is whatever you are comfortable putting in equities, but it in index funds so you at least know what you'll be getting instead of investing with an active manager who may have a Washington Mutual or AIG lurking round the corner. You may not't have the time or luxury to stick around waiting for these managers to be proven right in the "long term" when your "long term" is lurking round the corner.
Just my 2 cents.
here are some performance data .note that 5 year record inclues 2008 where it lost about 27% >its currently about 60% stocks, 25% bonds and 10% cash. Its in the moderate allocation category which might be a good place to look for alternatives
1 Year 18.26%
3 Years 14.84%
5 Years 8.35%
10 Years 9.30%
Since Inception 11.33%
Inception Date June 30, 1986
Something more conservative might be something like vanguard wellesley (40% stocks ) plus a TIPs fund and or a floating rate fund and a short term bond fund. I am doubtful you should invest in something much riskier than these suggestions in order to acquire a large retirement fund. Still as suggested by others investing more (not necessarily bolder ) will have two benefits . You will know if it is possible to live on less (which may help you to decide at what age you should stop working and of course you will increase the size of the retirement fund. .
Still remember you are in much better financial shape than many in your position.