A conversation about investment and retirement

My dad’s a smart guy. He worked hard, had a successful career, put my sister and I through college (for the most part) and still managed to retire comfortably several before his 65th birthday. (He worked a couple of extra years to pay off his and his wife’s retirement home before retiring.)

I’ve recently been corresponding with him about what to do with our excess cash above maxing out our 401Ks. Here’s his reply:

—– snip ——

As to investments

  • Payoff ALL debt. Credit card first if you have any. Then don’t spend any money you don’t have in hand. Look at your expenses and CUT them. You can save a lot more than you might think.
  • Take a given amount each pay period and sock it away. Sounds like you have exhausted pre-tax so go to tax deferred next. Ladder EE Bonds, tax differed annuities and such. Yes, the rate is low right now but it is safe and you won’t have to think about it. Over the years you will create a money stream in retirement that will help you avoid using your retirement money until 70 1/2.
  •  Take the rest of the loose money and invest in some mutual funds — Canada, South America, energy are good right now. There are others. You will have to keep an eye on these but, go for the long term.

You may not agree with all this but, it will work over time.

Oh, and don’t try to retire too soon. Look for a “next career” at a slower pace at the right time. The “next career” should be unrelated to what you have done to date. IE: NO COMPUTERS! Selling fine cars or a rock band comes to mind. I think I’m kidding — Maybe not?

—– snip ——

All in all I can’t say I disagree with him on any of the above. I do have some credit card debt at 0%, just using it to generate some interest. Overall though I am not sure it’s worth the time and effort. I also think I Bonds are going to be a better investment than EE Bonds in the next few years at least, but the basic premise is a powerful one. I remember after I graduated from college my dad would buy an EE bond every week out of his paycheck. By the time he retired they were starting to mature. This is generating income for him and I don’t believe he’s had to tap into his retirement savings yet. Not sure if I am ready to pay the mortgage off though. Our actual interest rate after tax deductions is around 3.5%. Given inflation that is nearly free money in my opinion. I think I’d rather invest in I Bonds or some other short-term instruments, at least for now, and keep the money a bit more liquid.

I also like his point about not retiring too soon. My dad is retired but still works quite a bit. The difference is that his job now is helping the Senior Citizens in the town he lives in and other volunteer efforts. I have to imagine it’s quite fulfilling. I’ve thought for a long time now that my goal should be to retire at 55. In retrospect, that’s not really the case. By age 55, preferably sooner, I’d like to be able to work at something I really enjoy doing (i.e. the money will be secondary.) Not sure what this will be but it should be fun to think about. I work in a career that doesn’t really add a lot of value to society and that bothers me sometimes…

Leave a Reply