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Long-Term Savings Strategy for Early Retirement
Are you looking to semi-retire or escape the rat race in your early 50s? Planning for your financial future is crucial, especially when it comes to saving for the years leading up to retirement. With a decent pension and 401k savings runway, you may be wondering where to invest additional funds for 5-10 years of time-in-market, to be withdrawn in your 50s.
Investing Strategies for Medium-Term Goals
When it comes to saving for a specific time frame, such as 5-10 years, it’s essential to consider various investment options that offer both growth potential and stability. Here are some preferred savings vehicles to consider for your pre-60 year old money:
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Stock Market Investments: While the stock market can be volatile in the short term, historically, it has provided impressive returns over the long term. Consider investing in a diversified portfolio of stocks and bonds to spread risk and potentially achieve higher returns.
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Real Estate: Real estate investments, such as rental properties or real estate investment trusts (REITs), can provide passive income and appreciation potential over time. However, real estate investments can be less liquid than other assets, so consider your liquidity needs before investing.
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High-Yield Savings Accounts: High-yield savings accounts offer a safe and secure way to earn a competitive interest rate on your savings. While the interest rates may fluctuate, these accounts provide stability and accessibility for short to medium-term savings goals.
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Certificates of Deposit (CDs) Ladder: CD laddering involves spreading your savings across multiple CDs with varying maturity dates. This strategy can provide a balance between higher interest rates than traditional savings accounts and flexibility to access funds at different intervals.
- Mutual Funds and ETFs: Mutual funds and exchange-traded funds (ETFs) offer diversification and professional management for your investment portfolio. Look for funds with a track record of consistent returns and low fees to maximize your long-term growth potential.
Considerations for Investing for the Medium-Term
When saving for 5-10 years of time-in-market, it’s essential to consider your risk tolerance, liquidity needs, and investment goals. Here are some factors to keep in mind when choosing a savings vehicle for your pre-60 year old money:
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Risk Tolerance: Understand your comfort level with market volatility and potential losses. Consider a mix of conservative and growth-oriented investments to align with your risk tolerance.
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Liquidity Needs: Evaluate how easily you can access your funds if needed before the planned withdrawal date. Choose investments that offer the right balance of growth potential and accessibility.
- Investment Goals: Define your financial goals for the savings earmarked for your early 50s. Whether you’re seeking income, growth, or a combination of both, align your investment strategy with your objectives.
In conclusion, when saving for 5-10 years of time-in-market to be withdrawn in your 50s, consider a diversified approach that balances growth potential with stability. By exploring various investment options like stocks, real estate, high-yield savings accounts, CDs, mutual funds, and ETFs, you can create a strategic savings plan to achieve your goals. Remember to consult with a financial advisor to tailor your investment strategy to your unique financial situation and risk profile.
If a market downturn would ruin your life then having money in the market is a bad choice. If in 5 years there is a downturn and you can just work a few more years or make it work with minor issues then it’s a good choice.
If you plan to semi-retire and start taking 401k distributions early, that’s doable through rule 72t and substantially equal periodic payment (SEPP).
For at least ten years, if you’re flexible about how you spend and what you do rather than necessarily needing a fixed cost, I would invest it in taxable. Not ultra-aggressively, but in accordance with my general investment strategy, and with the knowledge that the market could hit bear territory and my plans might be altered.
Right now probably treasury rates for 5 years. At 10 years I’m probably just going equities now and then rebalancing later
Closer to 5 years just tbills now. Adjust if they crater. Closer to 10 years equities. Or betrer yet just pick a target date fund that matches the withdrawal year and it will rebalance itself.
CD Ladder or I Bonds for predictable returns, still beats inflation.
Index 500 fund
Can you take out pension at 55?
Do you have any rental property?
Have you considered a CD ladder?
Perhaps a small annuity?
A combination of all 4 above could potentially yield $3-6K per month depending on your individual circumstances.
Have you considered a side gig like consulting or part time work?
Im on a similar timeline as you. Unless you already have enough money for full retirement now and just want to protect it, but not get much growth, there is no way to justify throwing it into fixed income instruments. If you still want/need to grow your wealth until you are ready to pull the trigger and retire you need to be in equities.
If you are worried about the risk then just keep it in the safest option available while still being highly exposed to equities, which is a passive index fund like VOO, VUG, or IVV. You could very easily get 2-3x the returns in these gap years over fixed income options, and that is a huge opportunity cost you would have lost because you are scared or trying to time the market. Worst case scenario you get a market correction or sideways market before you retire and have to work a little longer or live on a little less money for those gap years before 59.5…