Reply #21: My reply was titled.... [View All]

[AnneD]

pretty vanilla for a reason. I didn't want to go into specifics because I don't know all the specifics. And there may be folks here that specialize in retirement planning (and therefore have a vested interest or bias) but this is not the best place for advice-ideas maybe but not advice. I did not want to over analyze in my response. It is just general rules, not specifics. And I stand by my advise. It has done me well through some very difficult times and I sleep better at night.

The first rule of retirement planing and wealth building in general is manage your own money. I stand by my advice to take your money with you when you leave a company. There are other circumstances when you might leave it in(and that I wouldn't know because I do not know our friend's entire circumstances-but I am talking in general terms). It isn't a good idea to leave your money with your company's 401K. I would not leave it there as a rule. Also some companies restrict employees choices in mutual fund companies etc. That can cost you in fees etc down the road on top of what might be a lousy return. You want to have as much latitude in your choices-so take your money with you is a good rule of thumb as you can roll it over as you wish.

On the matching-I said contribute to get the matching. That is found money and companies match differently. I have worked for health care companies and they are notoriously cheap on their matching limits and the percent they give despite their big profits. I think I was specific enough. Just match to get their contribution-period. You can chunk more money in your 401k after a certain age but a 401K may not be the place to do it. Roth IRA's and the new HSA's (Health Savings Accounts) are frequently a better deal. Your 401K's will be subject to taxes and penalties for early with drawls and taxed even when you withdraw when you are suppose to. Since you put in Roth money AFTER taxes, it can be a better place to park your money as it has the advantages I mentioned. I know some 401's and 403's might let you borrow against them and can seem liquid, but that defeats the whole purpose of a retirement nest egg. This is money that is suppose to be untouched. An emergency fund is for things like this-not retirement. A farmer does not eat his seed corn and that is what retirement is-seed corn. You can eat your crops that your grow from your seed corn and you can set some of your crop aside for seed corn-but you never ever eat your seed corn (preserve your capital).

As far as withdrawing Roth's and the taxes, I checked this article

http://en.wikipedia.org/wiki/Roth_IRA

Withdrawing from a Roth seems easier and less burdensome tax wise than the 401'a and 403's. You can always get your principle-just not your interest earned before 59and 1/2. That seem pretty easy to me and sure beats keeping the money tied up until you are in your 70's.

Now, as far as keeping and emergency fund in a money market or a CD-either are good and they are both liquid. Remember-this is an EMERGENCY fund. An emergency fund can be sudden (2week-6mos notice) unemployment to needing a set of tires after you run over some nails to an increase in your property taxes that you know will be coming in the next year. This is not an access it anytime you want a cheese burger and don't have the cash in your pocket emergency account.

Maybe I am wrong, but I think a person that is debt free-like our friend-is probably smart enough to have a pass book savings or a minimum account balance to cover minor liquidity problems. CD's come in a variety of lengths and interest rates and are very safe AND LIQUID enough for some things. Money market accounts are also liquid but just make sure they are federally insured. I look for the best interest rate and the time limits before I decide what is best for me. Once I am debt free, I may have both a money market and some CD's for short term cash. At my age now-I have a long enough investment horizon that I don't use CD's much now-but it remains an option. As a side note... I remember when interest rates first started dropping, my mom looked pretty smart because she stuck her money in CD's when the interest rates were high and her friend that put money in stocks during a bull market lost money in the Stock Market crash in the 80's. Yeah, they made money on paper and lost real cash-but she got the real thing plus from the bank when the CD's matured. She was getting the highest interest in town for some time on her simple CD's. The bank was happy when those things matured.:spray:

And my last statement is true. The great the risk-the higher the yield. As one gets older-you want to maintain your principle, but folks sometimes forget and put it ALL in conservative and miss out on opportunities to grow extra money. We don't know how long we will live so we want to keep generating interest on our principal. You are right that one should diversify and that's why I suggested to use a small portion for the riskier stuff as a way to remind folks to diversify don't ossify.

But the best advice I can give anyone is...if the person advising you cannot explain an investment clearly to you and answer your question-no matter how simple they are-lose them. Don't let them make you feel 'inferior' for asking questions. And watch out for them flattering you too. Remember-they are to give you advice, NOT TELL YOU WHAT TO DO. They are your counsel-not your daddy.