August 21, 2009 Letters to the Editor

Updated: November 9, 2009.

Early Retirement

I received this letter from Scott.

Hello,

I just discovered your site and I feel like it is a bit over my head! However I will become a student in short time.

I have a defined pension and I would like to retire in about six years. I will be 51 years of age (yoa) at that time and will be able to receive 83% of my current salary beginning at 55 yoa. I should have an estimated 140k available to live/invest until pension kicks in. Can you please advise as to how I should invest the 144k until I receive pension checks. I will have to cover my insurance until 55 yoa whereby my employer will pick up the tab. I would like to live on approximately 40k a year until 55 yoa thereby continue investing the remainder for my daughters' future.

Thanks.

HERE IS MY RESPONSE

Thank you. I hope that you enjoy your retirement as much as I enjoy mine.

You need to protect your principal until you retire. Then, you will need to consume most of it.

I recommend sticking with a CD ladder for most of your investments.

With a CD ladder, you would invest in 1, 2, 3, 4 and 5 year CDs if all maturities were available. As each CD matures, you take what you need as living expenses and reinvest at the longest maturity available (5 years). You will need to make adjustments depending upon what is available.

You might consider buying some short term Treasury Inflation Protected Securities TIPS directly from the Treasury. It takes a little time to get around, but visiting the Treasury Direct site is worth your effort. TIPS will protect you against inflation. If we were to get deflation (decreasing prices), TIPS pay back their full principal at maturity. There are no dollar limits on purchases. Interest rates are far from exciting, but remember that inflation gets added in the form of principal adjustments.

Pay attention to taxes. You pay taxes on each year’s principal increase (inflation adjustment).

Consider I Bonds as well. Interest is not taxed until you make withdrawals. You can buy a total of $10000 per year per social security number. Half of this is in an electronic account. The other half is in paper bonds.

Treasury Direct

Early Retirement (Again)

I received this letter from Fa.

I work in an Ohio School district and have a retirement plan through the State Teachers Retirement. I can take my retirement plus reduce it by taking a PLOP. I would like to put the PLOP into a 403B plan. Can you recommend a low risk, low fee but very reputable company.

HERE IS MY RESPONSE

Thank you. I hope that you enjoy your retirement. It’s fun.

I do not feel qualified to make such recommendations. I develop overall strategies, but seldom do I investigate individual companies or securities.

You might very well visit the discussion boards at Morningstar. You will find a wealth of advice, much of it very good, some outstanding, but some of it bad. You have to be careful.

I post most often at the Income & Dividend Investing board at Morningstar.

Morningstar

Tributes to John Walter Russell

Members of the Retire Early and Indexing discussion-board communities offer tribute to our hero John Walter Russell here and here.

August 21, 2009 Letters to the Editor

Early Retirement

Early Retirement (Again)

Tributes to John Walter Russell

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