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Investments on the Taxable side
Finally at age 61 I am able to max out our 401K (with catch up) as well as both of our IRA's (with catch up).

We cannot contribute to a ROTH.

What or where would you invest your taxed savings?

Cash?  (No return...)

Muni's?  (Rising rates?)

Pure Growth?  (Market maybe overpriced?)

Dividends?  (And just pay the taxes?)

Pay down the mortgage?  (2.75%)

We are prepping to retire within the next 4 years (mandatory at age 65).

Never been here before so a little stumped....

Thanks....Have a good weekend!
There are people who use up their entire lives making money so they can enjoy the lives they have entirely used up
Frederick Buechner
Wow, Rob. Congrats!

Choices, choices ... nice situation to be in.

I've been thinking about that a little myself lately as I get closer to that point. Here's just some of the thoughts that I would go through in MY situation:

1.) Do the 401(k) and IRA contributions put you into a lower marginal tax bracket? If so, maybe convert some of the tax-sheltered investments into a backdoor ROTH and pay the tax on it now? That could lower your RMDs required down the road. This would take a lot of thinking through (at least for me). I couldn't find anything that would prevent you from doing the conversion but everyone's situation is different.

2.) Assuming you could stomach the low return, put a little more cash aside for the first months of retirement to lower your sequence of returns risk. Of course, if you're only planning to use the income from your investments and not withdraw capital in the early days of retirement, sequence of return risk is a non-event. Who knows what the market is going to do over the next 4-5 years considering where we've come the last eight.

3.) Shorter term munis (at par or less) wouldn't be a bad idea, maybe in the 3-5 year range. You'll probably get a little more income versus a bank/MM account and holding to maturity doesn't put your capital at risk. I don't expect inflation to jump enough to dent the buying power of your principal.

4.) Pure growth would make me a little nervous at this point in the cycle. If dividend growth stocks are on the high side right now, I wouldn't think growth stocks are closer to a fair value. Probably the opposite for the most part.

5.) Paying down the mortgage a little more doesn't seem too bad to me but that is only because I'm of a mindset that I want to go into retirement with as few bills as possible that I HAVE to pay that would risk my living situation. I can live without cable, maybe telephone and lastly Internet. Housing, property taxes, heat & lights are the must haves for me. However, at 2.75%, you're certainly not going to beat the returns on many other investments.

Any of the above would be better that making an big, extravagant purchase to stroke your ego although I wouldn't fault you for it.  Big Grin  Good luck thinking that through.
How do they get the deer to cross at that yellow road sign?

I can't comment on the tax issue as I'm not familiar with your taxation rules. However, seeing as retirement is looming I'd skip the pure growth, especially at today's market.

Muni's... at what interest rates? You could always buy and hold until maturity but I can't imagine you getting much income this way.

So with those two eliminated... then I see 5 good options left.
1. A bit more cash reserves is not a bad thing, we might be seeing some good buying opportunities later on. I wouldn't put everything here but a part sounds good.

2. Dividend payers. Why not?

3. Mortgage. I certainly would like to retire without a mortgage but I don't know if that's doable for you. But paying down debt is never a bad option in my opinion, it gives you so much flexibility.

4. Spend. You're not going to live forever. Sad to say say it but at your age you never know how many healthy years you've got left. Now you are still in a position where you can travel, do sports, spend time the way you want. Take advantage of it.

5. If you've got extra money.. give it to your kids / grandchildren. Again I don't know much about your situation but from what I've seen is people holding onto their money until they die. Then the children get their inheritance when they are around 40 or 50... when they have a stable job, most of their mortgage paid, their own kids probably out of the nest already. This is not the point when they actually need the money, they need it when they are in their 20's or early 30's when they are getting their family started. Again maybe not such a pleasant thing to think about but none of us lives forever.

The last is simply my own opinion of how things usually go in this corner of the world. Thankfully here a lot of people do prefer to "skip a generation" when doing the inheritance, so everything goes to the grandchildren (who will be 20-30 years) instead of people close to retirement.
As we say in New England "that theyah is some wicked smaaht advice".

Thanks!!! Pretty much were my head was too....
There are people who use up their entire lives making money so they can enjoy the lives they have entirely used up
Frederick Buechner
With a short window, you might want to look at preferred shares. You have no growth, but a better yield. I would only look at the more established payers and look to purchase at par or lower. BB&T has a couple of decent ones available.
I would be visiting different areas, if thinking of moving or a possible winter home. Also thinking of different types of long term health insurances, if possible. At least understand what types of healthcare you have for you and your spouse.

I would also make sure that all legalities are in proper order in case anything bad comes about. Not to sound like a downer but I'm dealing with a "parent" that just refused to have things in order such as "Estate Planning". Well, he didn't plan on falling and hurting himself so bad that he might never recover, or by the time he does recover the SNF will own everything and I do mean everything. His roommate is 68 years old, lost two pensions, any investments under his name, two life insurance policies and his SS check, the lawyer was able to save some things but most of it is gone. Not to mention anything Medicaid pays is usually paid after the recipient passes through the estate sale. Learn the laws as best as possible.

Okay...I'm sorry, but it's been a hell roller coaster for me and my siblings since April...
Good advice, rayray. That's been going through my mind lately also.
How do they get the deer to cross at that yellow road sign?


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