401k + pension

[jIM_Ohio]

It doesn't have to lower your tax bracket to be worth it -- simply not paying taxes on that income and on the investment gains each year is beneficial. (You do pay income taxes in retirement on the money as you take money out.)

I agree with Zetta

[jIM_Ohio]

That's what I was thinking...I mean right now we are doing the 401k up to what we think is about the limit and socking the rest in savings. But, I've got to start investing it elsewhere (the 1.5% just isn't cutting it in a savings account ). Then the question came up as to whether or not the investment should be for retirement or just as an investment.

Jim-Thanks so much for the references/formulas. I'll definitely be running some numbers and seeing how we shake out. Like I said, we live fairly frugal...our only real splurge is travel related and I expect that to continue. We don't plan on retiring for at least another 18 years, so we have that on our side as well. And, once I return to work I will contribute the max to my 401k to help compensate for the 2 years I've been home.

Thanks again!

Focus on asset allocation maybe... because some of what you need in savings is needed (in cash format), some might be needed less (CDs maybe) and some might not be needed at all.



Search for posts I made within last 6 weeks, somewhere I did a layered emergency fund post. I will try to highlight that here...

Layer 1- aiming for liquidity
Layer 2- liquidity important, but willing to have a penalty for a slightly higher return
Layer 3 focus on return with lowest volatility possible

How much is in each layer depends on employment and stability of life.

For example, if you know you need a $15k emergency fund (3 months expenses) and also expect to take a $10k vacation within next year, and also expect to need a new car in 10 years, consider a format like this:

Layer 1 is 15k cash. This is your emergency fund. a 90 day CD ladder, savings account, or money market account would work.

Layer 2 is $10k+9 months expenses in possibly a 12 month CD ladder ($3000 in 12 different CDs, each CD maturing 1 month apart). If your new car will cost $30k in 10 years, add 3k per year or $250 per month to this. Meaning as a $800 CD matures, you increase it $250 each month (so its $3250 year 2, $3500 year 3) and so on. When you take vacation its OK to cash in the CD and then use the $250/mo to replenish the CDs. At various times certain CDs will be larger than others, when this happens rebalance the CDs by resetting them to amount of 1 months expenses and leaving remaining until a lesser CD matures (for example if you have to cash one in for vacation, that "month" will need some more cash 12 months from now.

So layers 1+2 have 12 months expenses, and the money already there for the next vacation and you are building it up for a big expense (new car) even though that purchase is 10 years away. If you see other large expenses coming your way (kids college), increase the size of layer 2.

Layer 3 is a combination of conservative investments. Might be Muni bonds, might be moderate allocation mutual funds (I like PRPFX or RPSIX). In your tax situation, you can do better than RPSIX. I own both funds. PRPFX holds gold and silver, US and foreign bonds, US and foreign stocks and real estate/ natural resources assets. Its called Permanent Portfolio and I like its performance in chaotic markets most of the time.

There is no size limit or suggestion on layer 3. This is the retirement savings (in a taxable account) or money for an opportunity. You want to focus on getting a decent return, but not take much risk with any single investment.

Might get a 3-4% return on muni bonds, but those should also avoid the tax man. PRPFX might get you a volatile 7% return- up 14% one year, down 1-2% another year- not the roller coaster ride of the S&P 500, but it is a reliable fund in my opinion for a purpose like this.


My summary is keep about 12 months expenses in cash, and if you expect any large purchases within next 12 months, they should be cash too.

Because large purchases come and go, I also advise to keep a stream of money going into the EF. This is why I suggested you put in $250/mo for a new car even though its 10 years away when you need that money. If furnace breaks one month, you tap the EF and because the car money was going in already (automatically or by habit) you know the EF will get rebuilt in a short amount of time.

This is also helpful for retirement planning because even if you have no car payments, you still have a car budget (most cars will not last thru retirement- meaning if you are retired for 35 years, that is probably 3-5 cars you will need during retirement- having the $250/mo line item on the expenses for a car is important to make sure you account for large in frequent expenses for retirement.

[minnie1928]

Jim-Thanks again. I like the idea of a CD ladder for the emergency fund. I think I'm at the point where we can definitely do that. I'll have to look at rates, I know lately they've been pretty pathetic. Particularly for short term money...oh, who am I kidding, they're low for all terms . I currently have it sitting in an account earning 1.40%.

I found it ironic that you are recommending a T Rowe Price fund. Many years ago I worked for TRowe as an accountant. I worked in their Bond Accounting department, so I am VERY familiar with all their bond funds. I had planned to do my mutual fund investing through them anyway, so this was a good thing to see. When I worked there I was very impressed by the whole organization. Great people, they were very technology driven...always trying to find the most efficient way to do things.

I have been buying some individual stocks, but that's mostly just my "play money" portfolio. Although, I am averaging a 24% return. For real investing, I plan on going through a mutual fund or an ETF.

Thanks again!

[jIM_Ohio]

Jim-Thanks again. I like the idea of a CD ladder for the emergency fund. I think I'm at the point where we can definitely do that. I'll have to look at rates, I know lately they've been pretty pathetic. Particularly for short term money...oh, who am I kidding, they're low for all terms . I currently have it sitting in an account earning 1.40%.

I found it ironic that you are recommending a T Rowe Price fund. Many years ago I worked for TRowe as an accountant. I worked in their Bond Accounting department, so I am VERY familiar with all their bond funds. I had planned to do my mutual fund investing through them anyway, so this was a good thing to see. When I worked there I was very impressed by the whole organization. Great people, they were very technology driven...always trying to find the most efficient way to do things.

I have been buying some individual stocks, but that's mostly just my "play money" portfolio. Although, I am averaging a 24% return. For real investing, I plan on going through a mutual fund or an ETF.

Thanks again!

Judge the size of the EF based on your life...

I had 12 months expenses plus vacation outlined above, then excess "invested" in layer 3.

However you could make the case if you have 2k-3k per month to invest, that it makes more sense to keep lower amounts in EF (like 3 months expenses) and then invest more in layer 3 (conservatively) because that surplus you have per month is so high.

Best of success, and let us know how things go.