cds as 72t investment tool

L1: cds as 72t investment toolIs there anyone just using cds as a 72t investment and how is it working. Also if I have 350k from a 401kto set up a 72t plan and use a cd that pays 5 percent for 5 years I should be able to draw 5 x 350k = 17500 thousand per year using the correct interest number for the 72t calibration. I am 57 years old and will start ss at 62. I also have 200k in another ira as an emergency fund.
2007-07-23 17:56, By: rj, IP: [71.228.234.92]

L2: cds as 72t investment toolHi, RJ:
Sorry to say it but it is very unlikely that you will find anyone who has their SEPP plan invested solely in CDs. Many of us who are interested in financial planning have heard the “diversify” mantra MANY MANY times and have heeded that message. We do so because the data shows that this is a superior approach for building wealth over time.
There is no doubt whatever that cash or its equivalent in CDs or money market funds has its uses in retirement planning and funding. Cash is good stuff! That said, most investors would agree that any financial plan that invests solely in the lowest payingasset class does not make for a great retirement plan. The primary reason for this is that a very real and financially dangerous problem that lurks out there is: running out of money before we die. Inflation and taxes can take quite a toll, so it is necessary for investors, including those planning for retirement, to have part of their assets in other asset classes. When I think about this, I refer to them as “The BIG 5”. These include: stocks, bonds, cash, real estate, and commodities. All of these can be owned via low cost mutual funds at fund companies, such as T. Rowe Price, Vanguard, and Fidelity.
The asset allocation that generates the largest return while still allowing the investor to sleep comfortably is the allocation that is right for them. Typically, this will be 40-60% in stock funds of various kinds, 20-30% in bond funds of various types, and the rest in a good money market fund. Such a combowill deliver superior returns over time, beating both all-cash and all-bond portfolios. Of course, over short time periods, anything can and does happen, so it is possible that cash and / or bonds would perform better than stock funds for a time but this is a rare event. Having a good cash cushion protects the investor from having to sell stock or bond shares at an inopportune time plus adds some flexibility for additional buying during market sell-offs.
In the end, however, it is all up to each of us to come up with a plan that we can live with and not obsess about all the time. We should enjoy our retirement time and if we waste a lot of time worrying about our money / investments, then weprobably need to review the level of risk we are taking on. This is one place where a good financial planner can perform a very valuable service… finding our comfort zone in investing. The trick is often in finding a planner with whom we can work effectively.
Ed2007-07-26 21:16, By: Ed_B, IP: [67.170.159.37]

L2: cds as 72t investment toolEd:
Let me elaborate on two sentencences in the last paragraph of your post, specifically …
We should enjoy our retirement time and if we waste a lot of time worrying about our money / investments, then weprobably need to review the level of risk we are taking on. This is one place where a good financial planner can perform a very valuable service… finding our comfort zone in investing.
You have hit the biggest problem for both DIY investors andadvisors who work with investors.
NEWS FLASH: Investors lie about their true, risk tollerance bothto themselves and their advisors! Regardless of how many “risk assessment tests” the investor takes, they will declare or test-out as being able to assume more risk than is true when the market is going up. Conversley, when the market is going down, they go the other way by assuming a posture and portfoliothat is too conservative when in fact they can stomach more risk and should be invested a little more aggressively.
I”m not saying you should never make changes to a portfolio, but the tendency is for investors to go to extremes by positioning either very aggressive in all stocks or too conservatively in all cash, CD”s and bonds. I have found that a more middle of the road mixture of investments designed to lower volatility of the total portfolio will, in the end, lead to a bigger pile of money than trying to invest too aggressively and trying to “shoot the moon” for big returns, or too conservatively and missing good growth opportunities.
Jim2007-07-27 06:21, By: Jim, IP: [24.252.195.14]

L2: cds as 72t investment toolJim:
Lying to one”s self is a problem that I got over about 50 years ago. I”m sure that you are rightthat many people haven”tbut what of it? I stand by the notion that anyone who has money to invest should either do their own investing or find someone else who can help them do it. Is there another alternative?
As to your “middle of the road” approach… that”s a great way to invest, IMHO, and is also exactly what I was suggesting vs. an all CD, all bond, or all stock portfolio.
Ed2007-07-27 16:54, By: Ed_B, IP: [67.170.159.37]