Is this retirement plan possible...very conservative.

**KumateUSMC** · 10-08-2008, 08:43 PM

I just started investing and after 2 weeks I found out that I dont like the stock market. I know we are going thru a hard time and the stock market is being insane but I find myself stressing over it and I don't really have any money in it. So i couldnt imagine how I felt when I did have money.

From everything i've read no one seems to do this and would never recommend it but I've been doing the numbers and they work so I'm not sure why.

Im 29 and wifes 28. This is a worst case sceniro plan. I will be donating to the TSP and 2 Roth IRA's (wife and mine).

Heres the plan and numbers.

Ok Roth IRA's

Putting them all into Bonds. Fund examples
Vanguard Inflation securities, GMNA, Total Bond Market index or Long term treasury.

Putting our Roth IRA's Into one of those fund...say GNMA or TIPS. They since inception have earned 7-8 percent. 10 year average is 5.5 to 6 percent. But lets just say worst case 5 percent for now.

My Roth
5000 x 31 years (im 29..retire at 60)

Thats 155,000 invested and return is 555,069.
Thats not even including the yearly increased (like next year is 5500) or the 50+(age) years where you can contribute more for cacth up. So 155,000 invested would be lowest I could invest.

Wife's Roth IRA
5000 x 32 (Shes 28..retire 60)

Thats 160000 invested and 591,151. Same stuff as before.

SO between us thats roughly 1.1 million dollars just doing 5 percent. Now I didnt take taxes out or the expense ratio becuase Im not sure how that all works but im sure its a decent amount but not cripling right?

Thats our Roth IRA's

Now TSP

10,000 a year for 13 years (How long I have till I retire) Im almost positve I can put more then 10 grand in a year but once again just doing worst case.

So thats 130,000 invested and after 13 years that 182,795. Now this is in the G fund which normally goes from 5-9 percent a year. Last 10 years is 5.12. The G fund expense ratio is .12 . Ok after 13 years I can no longer contribute anymore becuase I retired from the military. But I can leave it in the G fund to gain interest.

182,795 x 18 (Ill be 42) = 448736 Thats 265741 in interest x .15 for taxes which is almost 40,000 in taxes. So basically 400,000 dollars.

So 1.2 mil from Roth IRA's
400,000 from TSP
My Retirement Pension which starts at the age of 42 for around 36,000 a year (3000 a month after taxes) Thats worse case..will probably be higher rank. Thats 1 million in pension alone from 42-72 years of age.
Thats not including my Wifes 401k becuase shes finishing up her masters before she starts her job. Also not counting Social secruity(if its around) or Reverse mortgage (possible).

Now thats all just using bonds and no stocks at an average of 5 percent.

What am I missing please? I mean I just dont get why I couldnt retire of this? I mean having a million dollars gain interest when Im 60 is going to get like 30-50 grand a year in interest before taxes. I dont live like a superstar. I drive cheap cars with good gas milage (neons/corrola) and plan to keep this style as I get older. We have 1 child whos college is taken care of via MGIB. Where am I wrong to thinking that I couldnt retire doing this? Heck if I didn't even gain any interest off donating 20 grand a year thats still 640000 dollars when I'm 60 in the bank. Someone help me please with this. I know I am going to gain more via the stock market and I might even put like 80 Gfund and like 20 "I"fund just for a little stocks becuase I think I could handle that without worry ..but other then that I dont think I can stomach watching the market.

These were worst case numbers. Im sure I can donate more then 20 grand a year. Why i didnt start investing before I was 29...no idea..wasnt married and didnt have a kid till a few years ago..and I didnt have the family background to really guide me thru it or give me that swift kick in the butt...But now I do. I plan to use it wisely.

Please any thoughts or dsiapprovals welcome. Slice my plan to threads please. I wanna know where I am faulting myself and my family.

Kumate

**Birchtree** · 10-08-2008, 11:56 PM

Kumate,

You should recognize that bonds operate off negative psychology and usually the bad economic times run shorter than the good economic times. With good economic times the Federal Reserve will mess up a bond portfolio by increasing interest rates and bond prices will fall accordingly - you can do much better in a Roth using stocks. There is more risk but then again stocks pay dividends four times a year and those dividends can be reinvested for free. A nice stock portfolio will provide much more flexibility when you eventually decide to take money out. The gains that can be made with stocks are greater because you do assume more risk for the better reward. You and the wife can be nicely diversified each owning 25 stocks accumulated over time and once the dividends start the program can be put on automatic pilot. It's so easy that way. I have a substantial stock portfolio with about 302 individual stocks - I just added a few more today - that pay dividends all the time. It has taken me 40 years to accumulate this position and I've learned primarily from the school of hard knocks. I'm currently riding the bottom of this bear market continually searching for potential to buy more assets. With a Roth there is no required minimum distribution ever and these assets pass to an inheritance rather easily. Yes, stocks are the way to go - bonds stink. My daughter is in the Army and has her TSP set at 75% C and 25% I fund and never looks at it - but she maintains the discipline of dollar cost averaging and she is hugging the bear right now thankful for these low prices. Investing doesn't have to be difficult but courage is often required during times like this.

**Frixxxx** · 10-09-2008, 12:07 AM

Retirement plans are based on goals. Goals are set on expectations. Your plan does have merit and it is wonderful that you are planning for your future. Your plan does not work for me because the limitations you have set upon your self by trying to stay out of the stock market. I have made thousands of dollars in the market. There are up times and down times. The hardest part of starting out investing is the amount you have as opposed to the amount it is worth. $1,000 dollars losing 37% is painful and in your face. $100,000 and losing 37% feels evil. $1,000,000 and losing 37% well, thats a house in California (last year).

Any way, Birch is right. Stocks will make you money over the long haul, but timing influences everything. If you buy a stock today at $2.00/share from it's height of $20.00 a share, (WIFE MATH here) YOU saved 90% on your purchase. Once the market settles and cooler heads prevail, they could easily go back to $20+. Hence you make 1000%. If it has a dividend it pays more.

Before you throw away an option on investing. Learn how it works and use it to your advantage. Then 5% a year will seem like pittence comparatively.

Good Luck!

**Mike** · 10-09-2008, 12:24 PM

Inflation will erode your earnings:

http://apps.finra.org/investor_Infor...vingsCalc.aspx

For example, if you assume a 5% inflation rate (which is being generous I think given our horribly loose monetary policy), a $3.5 million balance in 30 years will only be worth a little more than $800k in current dollars. Assuming a 4% withdrawal rate starting at age 62, you'd be able to take out $32,000 per year - which doesn't seem so bad until you consider that once you adjust for inflation, this amount is only worth about $7k-$8k in current dollars. If this doesn't illustrate why you should take greater risks over a long period of investing, I don't know what does.

The simplest solution from where I'm sitting is to kick all this money into the L2040 (TSP) and do something similar with the Roth money (look for a target date retirement fund with low expenses through somebody like Vanguard). This automatically reallocates your funds to manage risk as you approach retirement, so you don't have to worry at all about asset allocation / redistribution. By the time you hit the target year of the fund, you'll be split fairly evenly between stocks and bonds.