Retiring earlier than planned due to health issues

[Xmascarolmarie]

My husband has decided to retire earlier than we had planned due to a year of health issues and stress.
He is retiring this summer at age 60 with a $3900/month pension that will adjust with inflation. We will set it so I get 100% survivorship.
He will collect $1700/month SS at 62 and I will get $850/month the next year.
The next 2 years will be tight since we will be paying for insurance on the market place.
He has $23,000 in IRA's and I have $65,000 in IRA's.
I also have approximately $400,000 from an inheritance. Most is sitting in high interest savings accounts making pitiful interest.
We are debt free and in the 12% tax bracket in WA state.
I tried to start investing at Vanguard in February but lost my nerve and pulled out. Now I am getting antsy again. I moved $50,000 back to Vanguard into the 2025 target retirement fund. Now I am panicking about potential downturn.
We really are fine without growth but I get upset knowing that inflation is higher than our growth right now. I am researching all the more conservative Vanguard funds but getting confused. I believe I need the most conservative options.
All advice welcome. Thank you!

[bjl584]

With any riskier investment you are exposing yourself to some risk of loss
Have you considered talking to an advisor about what to do with the $400K?

[Xmascarolmarie]

With any riskier investment you are exposing yourself to some risk of loss
Have you considered talking to an advisor about what to do with the $400K?

I feel like the 2025 target is too risky for my comfort level. I know I couldn't handle a big loss.
Are there any fund suggestions that are more conservative to look at.
I have met with an advisor, but they want to diversify my entire pot. I can't handle giving away that much control.

[disneysteve]

Sorry to hear of your husband's health issues. I hope that while they are leading him to retire, they aren't serious enough to prevent him from enjoying his retirement for many years to come.

I think you need to take a step back. Rather than focusing on how to invest the 400K, look at the big picture. What will your monthly expenses be when he retires? Start with that number and then work from there. Figure out how much you will have coming in and how much of a shortfall you will need to cover.

Will his $3,900/mo pension start right away upon his retirement?
How much will you be paying for insurance?

Then look at what you have.
You both have IRAs. How are they currently invested? Are you already taking distributions, or will you start doing so when he retires? How much are you or will you be drawing from them each month?

Keep in mind that there is not one single right answer and there isn't an all-or-nothing decision that needs to be made.

You mentioned that you've put 50K into the VG 2025 fund. That represents 10.25% of your total money (400K inheritance, 23K and 65K IRAs). That fund is 59% stock, so 59% of 50K is 29.5K which is just 6 % of your total money in stocks. That's hardly risky or aggressive by any measure. Could it lose value? Sure. But over the long run, the next 20-30 years, it is virtually guaranteed to grow.

I'm a firm believer that everyone of any age needs to have some money in stocks to combat inflation, as you alluded to. Personally, I think 25-30% is a good portion regardless of your age. You sound like you are particularly loss-averse, so maybe you might sleep better at 20 or 15%, or even a little less. Again, unless your IRAs are in stocks, the Vanguard investment puts you at just 6% right now.

To summarize, figure out what you need coming in each month. Then look at what you have. Then you can build your portfolio and allocation around that.

[disneysteve]

As for other funds, you may want to consider something like Vanguard's LifeStrategy Income Fund (VASIX). It is 20% stock, as opposed to the 2025 fund that is 59% stock. It has an average annual return of around 6%.

[corn18]

You could buy a Single Premium Immediate Annuity (SPIA) with the $400,000. That pays out $1,451 / month for life with 100% survivorship. Only issue is this doesn't have a COLA. That would give you $7,901 of guaranteed income for the rest of your lives. You could use the IRA money for travel or charity or whatever.

You can try out different annuities at immediateannuities.com. Do not get any annuity except a SPIA.

[disneysteve]

You could buy a Single Premium Immediate Annuity (SPIA) with the $400,000. That pays out $1,451 / month for life

And again, remember that there is not an all-or-nothing decision to be made.

You have a big pile of cash - $400,000 - to work with. It doesn't all have to go into a single mutual fund. It doesn't all have to go into stocks. It doesn't all have to go into bonds. It doesn't all have to go into an annuity. You can spread it around so as to best meet your needs and match your risk tolerance.

Maybe that means 50K goes into that 2025 fund and another 50K goes into the LifeStrategy fund I mentioned and 250K goes into an annuity that corn18 suggested and the remaining 50K stays in that high interest savings account.

First step, as I said above, is to figure out how much you need and then you can move forward from there.

[Xmascarolmarie]

And again, remember that there is not an all-or-nothing decision to be made.

You have a big pile of cash - $400,000 - to work with. It doesn't all have to go into a single mutual fund. It doesn't all have to go into stocks. It doesn't all have to go into bonds. It doesn't all have to go into an annuity. You can spread it around so as to best meet your needs and match your risk tolerance.

Maybe that means 50K goes into that 2025 fund and another 50K goes into the LifeStrategy fund I mentioned and 250K goes into an annuity that corn18 suggested and the remaining 50K stays in that high interest savings account.

First step, as I said above, is to figure out how much you need and then you can move forward from there.

Thank you!
It is hard to be me - a planner and over thinker! I want all my ducks in a row at all times. This has made me petrified to make any decision for fear of making a big mistake. My husband just leaves all these decisions up to me. His stress is down which is good for his health but mine is sky high. My parents were ultra conservative having lived through the Depression so a lot of their ways have rubbed off on me.

[corn18]

Thank you!
It is hard to be me - a planner and over thinker! I want all my ducks in a row at all times. This has made me petrified to make any decision for fear of making a big mistake. My husband just leaves all these decisions up to me. His stress is down which is good for his health but mine is sky high. My parents were ultra conservative having lived through the Depression so a lot of their ways have rubbed off on me.

You don't have to be right, just don't be wrong. The wrong answer would be to buy all gold, or all stocks, or all bonds. As long as you diversify, regardless of what it is, you will be ok.

But you really need to answer DS's question: how much you need (annual spend would be great)? Without this, we have no idea if you need to take very little risk or you need to bet the farm on Gamestop.

[disneysteve]

It is hard to be me - a planner and over thinker! I want all my ducks in a row at all times. This has made me petrified to make any decision for fear of making a big mistake.

I totally get that. But it is vitally important not to fall victim to 'analysis paralysis' where you are so hung up on making THE right decision that you make no decision and fail to achieve the desired outcome as a result.

[disneysteve]

bet the farm on Gamestop.

Which, just to be clear, would also be wrong!

[Jluke]

The lifestrategy fund that DS recommended would be a good choice for you. It is super conservative.

You don’t need an advisor as they will just put your money in their pocket.

You may want to have 12-18 months of expenses in cash; invest the rest.

more funds does not always mean that you are diversified.

keep it simple. Don’t panic. On down days don’t even look.

more money has been lost trying to time the market than is actually lost if you hold.

the enemy of a good plan is the quest for the perfect plan.

don’t do something. Just stand there

[Drake3287]

Sounds like your husband might be a government employee. If so you need to look into how the Government Pension Offset rule might work with his social security income. At least where I worked, lot's of people didn't know about it until shortly before retirement.

[Xmascarolmarie]

Sounds like your husband might be a government employee. If so you need to look into how the Government Pension Offset rule might work with his social security income. At least where I worked, lot's of people didn't know about it until shortly before retirement.

My husband is a teacher in Washington state. From what I have read, Washington is a non pension offset state. I believe he is entitled to both his pension and SS. I am searching now to make sure I am correct, but what a shock to find out about these things right before retirement!

[Xmascarolmarie]

You don't have to be right, just don't be wrong. The wrong answer would be to buy all gold, or all stocks, or all bonds. As long as you diversify, regardless of what it is, you will be ok.

But you really need to answer DS's question: how much you need (annual spend would be great)? Without this, we have no idea if you need to take very little risk or you need to bet the farm on Gamestop.

We have been working on a budget this entire year since he decided to retire early. We do a lot of frivolous spending that will be cut out during our lean months between retirement and social security collecting. From what I can figure, we will be fine with about $50,000/year.