Retirement in 15 years, $200K in cash

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justaguy
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Retirement in 15 years, $200K in cash

Post by justaguy » Mon May 05, 2014 11:05 am

Hello all,

My only background on investing is that I read the book "Boglehead's guide to investing", so I have a very limited knowledge base on investing which is why I am looking for some help.

-50yo divorced female
-Planning on retiring in 15 years (very conservative estimate) and have $200,000 in cash in a checking account as of right now.
-Annual salary of $65,000 pretax.
-No additional income or any debt or monetary obligations, no money in a retirement account of any kind.
-Living in an apartment for $1500/month - open to the idea of buying a condo or investing the cash I have currently.
-Employer offers TIAA-CREF (403b) retirement fund
-Employer matches 5% of paycheck.
-Able to fund retirement account up to a maximum of 80% of my paycheck.

TIAA-CREF options:
http://www1.tiaa-cref.org/ucm/groups/pu ... 034276.pdf

In my opinion, I think I should transfer the $200K in my checking account to the TIAA retirement account by maxing out my TIAA every year as well as my Roth-IRA and give myself $50,000 to live on this year and invest the remaining $140,000 into Vanguard.

What would you do in my situation? Also, what should I invest in?

Thank you so much for your help. I have never appreciated an online forum more than this.
Last edited by justaguy on Mon May 05, 2014 12:52 pm, edited 3 times in total.

Grt2bOutdoors
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Re: Retirement in 15 years, $200K in cash

Post by Grt2bOutdoors » Mon May 05, 2014 12:46 pm

What is your estimated annual income needs at retirement?
You have 15 years and 200K in cash right now. On the face of things, I don't think that will be anything close to sufficient to permit you to retire and have your portfolio last you throughout retirement, even with Social Security.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

justaguy
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Re: Retirement in 15 years, $200K in cash

Post by justaguy » Mon May 05, 2014 12:50 pm

Grt2bOutdoors wrote:What is your estimated annual income needs at retirement?
You have 15 years and 200K in cash right now. On the face of things, I don't think that will be anything close to sufficient to permit you to retire and have your portfolio last you throughout retirement, even with Social Security.
How much of a match, if any, will your employer provide if you do contribute to the plan?
Employer provides a 5% match of total paycheck. 15 years is also a very conservative estimate. I'm 50 years old and I plan on working as long as possible which hopefully ends up being around 20-25 years.

dipsylala
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Re: Retirement in 15 years, $200K in cash

Post by dipsylala » Mon May 05, 2014 2:00 pm

justaguy wrote: -Living in an apartment for $1500/month - open to the idea of buying a condo or investing the cash I have currently.

give myself $50,000 to live on this year
Have you considered cutting your living expenses? They seem a bit high.

z3r0c00l
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Re: Retirement in 15 years, $200K in cash

Post by z3r0c00l » Mon May 05, 2014 2:06 pm

Employer provides a 5% match of total paycheck. 15 years is also a very conservative estimate. I'm 50 years old and I plan on working as long as possible which hopefully ends up being around 20-25 years.
You probably will have to unless you save quite a bit starting now, say 30,000 a year for the next 15 years. Even that is going to be a challenge if you need to draw it down at more than 4% per year, which is possible depending on the cost of living in your area and your personal needs. Perhaps you will be able to semi-retire and just work part time from 65 on?

I would set the $30,000 a year savings as your target as a minimum. (That would have given you a million+ if it had been done for the past 30 years.)

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LowER
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Re: Retirement in 15 years, $200K in cash

Post by LowER » Mon May 05, 2014 2:15 pm

Have you checked out firecalc.com yet?

On the first page, put in your desired income IN retirement in the first blank, then your CURRENT savings in the second blank, and the third blank covers the span of time between now and retirement, then fill out the next couple of pages that are a bit more self explanatory. I think I remembered all that correctly.

I am sort in a similar post-divorce situation and have had to save a huge percentage of income to get close to retirement.

bungalow10
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Re: Retirement in 15 years, $200K in cash

Post by bungalow10 » Mon May 05, 2014 2:29 pm

justaguy - is 200,000 in cash the extent of your savings?

Do you have a budget and know how much you save, pay in taxes, and spend right now? Like others have said, $50k in expenses for a single person is kind of high.
An elephant for a dime is only a good deal if you need an elephant and have a dime.

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Watty
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Re: Retirement in 15 years, $200K in cash

Post by Watty » Mon May 05, 2014 4:42 pm

No additional income or any debt or monetary obligations, no money in a retirement account of any kind.

I think that some of the prior posts were too negative on your situation. With no debt, and that much money in the bank you are likely far ahead of the average person in your situation. $200K invested for 15 years combined with 15 more years of retirment contributions could add up to a nice nest egg.

That isn't to say that you won't have be careful and make some hard tradeoffs to make it work but even without seeing all your numbers having a comfortable retirement looks very doable if you can work into your mid 60's.

-Living in an apartment for $1500/month - open to the idea of buying a condo or investing the cash I have currently.

How much would a condo cost in your area? (Both to purchase and the monthly expenses)

Is your situation stable and would you likely live in the condo for at least 10 years? If you just got divorced in the last few years that is a lot different than if you have been divorced for a long time.

In my opinion, I think I should transfer the $200K in my checking account to the TIAA retirement account by maxing out my TIAA every year as well as my Roth-IRA and give myself $50,000 to live on this year and invest the remaining $140,000 into Vanguard.

Maxing out your Roth would likely be a good idea since you have the ability to contribute a lot to your 403B. If needed you can withdrawl your Roth contribuitons (but not earnings) if you have a big emergency. Some people use their Roth as their emergency fund.

Your idea of increasing your retirement contributions by swapping the money is a good idea but you need to be careful with taking the taxes into account when moving money around. For example if you are in the 25% tax bracket and put $12,000 into the 403B and spend $12,000 from your savings then you also have $4,000 in tax savings. In order to offset the $12,000 403B contribution you could only spend $8,000 from your savings to make it equal with the $4,000 in tax savings.

If you max out the 403B each year for the next few years you will end up making a lot of the contributions in the 15%, or lower, tax bracket and in a few years you will have have put all your $200K into the 403B. It would be better to contribute just enough each year to get to the bottom of the 25% tax bracket even though it will take longer to get all the money into retirement accounts.


What would you do in my situation?

I would start by finding out the details of what you will be able to collect in social security and any pension. If you were married for more than ten years then you will be able to collect social security under your ex's social security account which would be a huge advantage to you since you could likely collect on his social security for a while and delay starting your social security until your are 70 to get a larger check. Go to the Social security web site and get your benefit amounts at the ages of 62, full retirement age(around 66) and 70. Try to make a good estimate of what your ex's social security will be.
Once you know what your social security will likely be you can figure out how much retirement income you will likely need.

Planning to work to a later age would be great if that works out but I would not depend on that since a layoff or health issue could make that not happen.

Also, what should I invest in?

A three fund portfolio can be set up very similar to a target date retirement account except that you can manage it yourself.

http://www.bogleheads.org/wiki/Three-fund_portfolio

You could start with that in your taxable account then as your funds in the retirement accounts grow you can make sure that the funds that are the most tax efficient are in your taxable accounts.

justaguy
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Re: Retirement in 15 years, $200K in cash

Post by justaguy » Mon May 05, 2014 5:40 pm

bungalow10 wrote:justaguy - is 200,000 in cash the extent of your savings?

Do you have a budget and know how much you save, pay in taxes, and spend right now? Like others have said, $50k in expenses for a single person is kind of high.
Yes, 200,000 in cash is the extent of my savings. I save approximately $10,000 per year (including the 5% match), pay 25% in taxes, and spend the rest.

niceguy7376
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Re: Retirement in 15 years, $200K in cash

Post by niceguy7376 » Mon May 05, 2014 5:42 pm

Now that we are talking about ex spouse and their SS benefits, is the OP a guy as the handle "justaguy" or a female as in the original post it was mentioned:
justaguy wrote:50yo divorced female

Johm221122
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Re: Retirement in 15 years, $200K in cash

Post by Johm221122 » Mon May 05, 2014 7:52 pm

Watty gave you a starting spot.I will make few comments
200k is good savings for 50(people on this site are not average savers)
I would definitely invest money but don't over estimate your ability to hold stocks
Try to spend your money on things you really enjoy
Here is article from prior post you should read

http://www.bogleheads.org/forum/viewtop ... 2&t=135173

John

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ruralavalon
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Re: Retirement in 15 years, $200K in cash

Post by ruralavalon » Mon May 05, 2014 8:04 pm

justaguy wrote:Annual salary of $65,000 pretax.
. . . . .
. . . I save approximately $10,000 per year (including the 5% match), pay 25% in taxes, and spend the rest.
How much (in dollars) did you pay in taxes on the last tax return?

How much (in dollars) did you contribute to the 403b last year?

Do you have other expenses that will disappear when you retire?

What does SS estimate you will be entitled to receive at 62? At 67? at 70?

Is there a pension? If so, how much and when?

How much (in dollars) do you have contribute to the 403b to get the full match each year?

How much (in dollars) is the full match each year?

How much (in dollars) do you expect you will be able to contribute to investing annually in the foreseeable future?

Are the other vendors (besides TIAA-CREF) available in your 403b plan? If so, what companies and what investments does each offer?
Last edited by ruralavalon on Tue May 06, 2014 12:53 pm, edited 1 time in total.
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LH
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Re: Retirement in 15 years, $200K in cash

Post by LH » Mon May 05, 2014 9:58 pm

Look into single payment immediate annuity from vanguard when you retire. Your retirement is going to be tight unless your needs are low.

Basically, every 100k gives you 4k per month in a 60/40 stock bond split expectantly with a 95 percent success rate inflation adjusted.
So 200k = 8k a year stream.

A spia, may get you up to 6 percent a year, but I have not looked. So with that 200k = 12 k a year

Good luck

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Aptenodytes
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Re: Retirement in 15 years, $200K in cash

Post by Aptenodytes » Tue May 06, 2014 3:18 pm

To clarify, is what you call a "5% match" an employer contribution to your 403-b that is 5% of your salary? If you add any voluntary contributions to the 403-b, does the employer match any of that?

Do you plan to live in the same town for the rest of your life? If so, is there any house you can buy free and clear for $200k that you would find acceptable? If so, you might want to consider doing that as a protection against inflation.

How strong would you say your job security is? The stronger it is, the more risky you can be with your savings. E.g. if you had very high job security and $200k houses were acceptable, I'd be inclined to buy the house as a protection against rising rents. But if job security were iffy, I would want to protect the liquidity and would not buy the house.

You might not be in such bad shape, if you can trim your expenses a bit and if your social security income is decent.

For example, if you can lower your spending and raise your savings to $25k per year; and if you are lucky enough to have access to cheap housing and can buy something outright for $200K, then you could end up with a portfolio in the vicinity of $450k. Buy a SPIA and your standard of living might not go down much.

YttriumNitrate
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Re: Retirement in 15 years, $200K in cash

Post by YttriumNitrate » Tue May 06, 2014 3:39 pm

Running the numbers with a 5% real rate of return and your current savings rate (15 years adding $10k a year), things don't seem that bad. I get that you'd have about $630k (today's dollar value, not future dollars) which at today's interest rates would buy a $3,227/month annuity for a 54 year old female.

Running that same calculation with the money in a 1% checking account gives you only $278k (today's dollar value) in 15 years, which would make things rather tight.

fposte
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Re: Retirement in 15 years, $200K in cash

Post by fposte » Tue May 06, 2014 5:02 pm

justaguy wrote:
Yes, 200,000 in cash is the extent of my savings. I save approximately $10,000 per year (including the 5% match), pay 25% in taxes, and spend the rest.
I may have missed something here--if the money is all in a checking account, how are you getting an employer match?

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Aptenodytes
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Re: Retirement in 15 years, $200K in cash

Post by Aptenodytes » Wed May 07, 2014 2:04 pm

fposte wrote:
justaguy wrote:
Yes, 200,000 in cash is the extent of my savings. I save approximately $10,000 per year (including the 5% match), pay 25% in taxes, and spend the rest.
I may have missed something here--if the money is all in a checking account, how are you getting an employer match?
It isn't really a match, I don't think, but a contribution.

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