Saving and Investing >

Everyone’s Strategic Retire Early Plan is unique and custom to the person. But they all have two crucial basics if they are to be successful in reaching their retirement dream. Spending Discipline and Saving and Investing. This page is about Saving and Investing.

If you are an advanced investor this page will be a little boring to you. However most of the people I talk to have no idea what to do in the realm of investing.

Everyone is a little gun-shy after the last recession. There is little trust of the system, too big to fail Banks, Wall Street, Corporate World, etc. Which of course is somewhat justified.

But investing is the only game in town. To retire early you have to get in the game and live with some investment risks. A Credit Union/Bank Savings accounts or Certificate of Deposit (CDs) isn’t going to give you the growth needed to meet your goals.

Part of your Strategic Retire Early Plan focus is keeping things simple. But investing can be very complicated. So in keeping it simple I will say we have two types of savings and investment account types. Retirement Accounts and Non-Retirement Accounts. Both types will need to be part of your unique and custom Strategic Retire Early Plan.

As you ramp up your savings rate you need to put your money in places that will help you make even more money for retirement. This means taking advantage of tax benefits. Also having other accounts that have no government rules about making withdrawals. Either account type allows for your investment choices as far as stocks, bonds, mutual funds, index funds, etc.

More details on these Strategic Retire Early Plan Investment choices are in a separate section below.

Saving and Investing Retirement Accounts.

There is the job related 401K plan (similar 403(b), 457 plans), personal IRAs and Roth IRAs.


Always take full advantage of your company’s 401K benefit. Especially if the company you work for offers a company match. Meaning they offer to add “X” percentage of their money to your money that you contribute.

As an example. I had a job where my company paid 66% of the first 6% I paid to my 401K. So for every dollar I put in up to 6% of my total income they added $0.66 (66 cents) for every one of my dollars. A salary of $50,000 X 6% = $3,000 that I contributed. The company match added $3,000 X $0.66 = $1,980 of their money to my 401K account. Any company match is free money to you.

If you have a company match you should at least put in enough to get the maximum match amount. This is true even if you are focused on debt and credit card pay off. You can contribute more than the amount your company matches and you should.

There is a yearly limit to what you can contribute (not including company match amount). For 2015 that amount is $18,000. If you are age 50 or older an extra catch-up amount of $6,000 is allowed. Do not lose the power of compounding interest and dividends over time by delaying contributing to your 401K plan whether there is a match or not.

Why save in a 401K if there is no match?

401K contribution money is taken out before you get it. It isn’t taxed either because this is a tax deferred account. Meaning you pay taxes once you take money out of the account. This is the easiest way to have a sustainable savings plan where you take “you” out of the equation.

Sometimes we get in our own way and don’t get things done. Especially if saving is a weakness we need to manage in your Strategic Retire Early Plan.

For any questions about contribution limitations just google “401K yearly contribution limitations”. Look in the search results for sites with a link address starting with

Setting a goal to max out your 401K contribution will be a good start to reach your early retirement goals. Of course maxing that out will be harder to do on a lower salary. The percentage you are saving is related to your yearly salary. $18,000 works out to be 36% of a $50,000 a year salary. That would be an awesome saving rate. The less you make the higher percentage of your income the 401K maximum limit is. The more you make the less percent of your income.

Don’t hung-up on the 401K savings limit amount. Your goal is to save as much as you can. In other words, save the highest percentage of your income that you can for an early retirement. By increasing your 401K contributions by any raise percentage you get you will slowly make your way to maxing out your contributions.

401K accounts are tax deferred, meaning all of your gains from interest, dividends, and stock value increases are tax deferred. You pay no taxes until you make withdrawals.


The Traditional IRA is another tax deferred Retirement Account. You open an IRA account where you would like. Banks, investment firms, financial company, etc. Then contribute to it and deduct your contribution amount when you file your income taxes. Like the 401K, all of your gains from interest, dividends, and stock value increases are tax deferred. You pay no taxes until you make withdrawals.

There is a yearly limit to what you can contribute to an IRA. For 2015 that amount is $5,500. If you are age 50 or older an extra catch-up amount of $1,000 is allowed. However traditional IRA contributions are phased out for people who are covered by a workplace retirement plan. It depends on your modified adjusted gross income and tax filing status (single, married, head of household). Because these IRA limitation amounts change yearly check the site for current details and limitations.

If you are changing jobs and have a 401K that you contributed to. You can open an IRA and have the 401K funds rolled over to the IRA. There is no income limitation. You will also have a larger choice of investment funds to choose from by doing this.

Let’s face it. Someone who maxes out an IRA account every year isn’t going to retire on that alone. But it is a great start. Never underestimate the power of time and compounding in a tax deferred account for building wealth.


This IRA is funded with income that has been taxed. The beauty of this account is all withdrawals are tax-free. Including gains in your investments after age 59 1/2. Contributions are subject to the same traditional IRA phase-out based on income, filing status and when you are covered by a work retirement plan.

The maximum contribution amount is also the same as the traditional IRA. If you contribute to both a traditional IRA and Roth IRA in the same year. The Max $5,500 contribution limit is the total contribution to both plans. Not $5,500 for each.

You can withdraw money from your Roth without penalty or taxes whenever you want to. As long as its only money you have contributed. However, gains or growth on your contributed investment might be subject to tax and penalties depending on whether or not your withdrawal passes the IRS Five Year Rule. The Five Year Rule rules apply for any withdrawal from a Roth account created when you rolled Traditional IRA funds into it. (Check the IRS.Gov site for more details).

The great thing about a Roth is it is available if you absolutely need it for an emergency. For younger savers the benefit of many years of compounding gains, not only tax-free as the account grows, but when you make your withdrawals makes the ROTH a no brainer to open and fund. Its exclusion from age 70 ½ RMD rules is also a benefit for a long-term investment strategy.

Non-Retirement Accounts

There are Bank or Credit Union Savings Accounts, CDs. Investment accounts for Stock, Bonds, Mutual Funds, etc. They don’t have tax deferred treatment nor withdrawal or contribution limitations. You might pay a lower tax rate for any dividend income and long-term capital gains.

You can also write off any capital losses. You do need to make sure that your brokerage keeps track of your stock and bond basis. If not then you should keep records of what you paid for any shares you own. Basis minus sales price is how your capital gains or losses are calculated once you sell them.

If you are retiring early you will need to include investing money in these Non-retirement accounts. This is due to retirement account early withdrawal penalties. Having money in these non-retirement accounts can be accessed without the government getting involved. How much to save depends on how early you will retire and the income strategy you go with. Like utilizing the IRS Rule 72t for SEPP IRA, 401K age 55 or older retirement, etc.

Strategic Retire Early Plan Saving and Investing Choices

Bank or Credit Union Savings Accounts and CDs

Putting your money in these low risk accounts will be safe. But the interest you receive will not keep up with inflation nor grow enough to help escalate your net-worth. They do have their place in your Strategic Retire Early Plan. It is recommended that you have at least 6 months of living expenses in cash available accounts.

CDs do lock your money up for a period of time in exchange for a higher interest rate paid than the savings accounts pay. Because the CD rates are so low at this time I have not used them. I prefer to be more liquid with my cash. The idea is to have cash available for emergencies so you don’t have to borrow money or take money from your ROTH. The point of having cash once you retire is so you don’t have to sell investments for your retirement income during any period when the market is down.


Bonds are issued by companies, municipalities, and even the federal government. They are like loans set for a period of time with a given interest rate. Bonds do normally return a rate above the inflation rate but they won’t generate enough income to get you to your retirement date.

Bonds are better suited for people who have already retired so they can live off of the income they produce. There is still risks with Bond investing. When Interest rates go up the bond price goes down so there is risk of overall capital loss if you sell your bonds before full maturity. Also a company can call their bonds back, basically paying you off early and you miss out on the income you planned to receive over the term.


Owning a Company’s stock makes you a small owner of a piece of the company. But your investment risk is also higher. You can buy individual company stocks for growth and in some cases also receive dividends. You should learn to read company financials and pick stocks that aren’t overvalued (stock price/earnings).

Some stocks pay dividends but the stock price doesn’t grow much while other companies do not pay dividends and their stock price may appreciate faster. Owning individual company stock can be fun and exciting to watch as they grow and you can even reinvest dividends to buy even more stock. You do have the risk of picking a company that is headed for a downward slide for whatever reason.

As Warren Buffet says, pick companies you can understand what they do. If you are looking to do the research to buy and trade stocks you can open an account that charges by the trade like E*Trade, TD Ameritrade, etc. Google “best online stock trading sites” or go to this site as an example and find the right one for you.

If you are interested in learning more about Dividend Investing there are some really good blogs that specialize on that. Check out my Favorites and Recommendation page as I will have at least one of these awesome Dividend Investing  blogs listed.

Mutual Funds

This is where you are buying into a fund containing many companies stocks and/or bonds. They can be managed funds, non-managed funds, load funds or non-load funds. All of these different arrangements comes with different costs to you associated to the fund. What you are doing is buying into the fund containing a group of companies not a single stock or bond and because it’s spread out over many companies your risk is reduced.

These funds can also specialize to specific sectors like Large Cap Business, Small Cap Business, International, and any investment segment combination they can come up with and think they can beat other funds for gains performance. You do need to watch for costs as this can eat into your profits.

Get Investment Advice

Investing can be intimidating and for many it is far more than they want to take on. Finding the right financial advisor can also be tricky. They come in all flavors and if you go this route find one that is certified and licensed as a fiduciary, meaning they must keep your best interest at heart and not just recommend to you high commission investments.

There are many independent advisors and those who work for the large firms like Charles Schwab, Ameriprise, Merrill Lynch, Edward Jones, Morgan Stanley, etc. Be aware that they may require a minimum portfolio amount to work with you and it won’t be free. I use a Financial Advisor and I talked to a number of them before settling on him. I had answered the question of when I wanted to retire when I was age 40 and my answer was at age 50. So when I said I want to pursue early retirement within the next ten years their answer was the decider for me. I found the right advisor who also walked the talk and had early retirement goals for himself.

Saving and Investing the Easy Way

The easiest way to invest is Index Funds. This is where the majority of people should consider investing if you are not an investment wizard. Remember part of our sustainable Strategic Retire Early Plan was to keep it simple. Index funds are a type of Mutual Fund but have the lowest costs to you.

They invest automatically by buying rule-specific ratios of every major stock or bond in the market. The fund’s cost (fees) are less because it uses an algorithm rather than having active management deciding which stocks or bonds to select for the fund. You can expect average performance and average risk with index investing which means less volatility and you can sleep easier.

You can look for a balanced index fund which has both stocks and bonds, a total stock market index fund that is all stocks, or a total bond index fund. The bond fund would be more appropriate for after you retire as it won’t have the growth potential of the stock fund based on past historic gain averages. However, having some diversification in your portfolio (Stocks, Bonds, Emerging markets) is normally recommended to reduce volatility.

But Where and What Index Fund?

I am not a financial advisor so I can’t recommend anything in particular but I have seen great things written about some funds worth your research.

Total Stock Market Index Fund

If you are on the path to early retirement then your Strategic Retire Early Plan investing could start with what many call the best fund to invest in- the Total Stock Market Index Fund at Vanguard (VTSMX) which is designed to give investors exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks.

Its low expense ratio of 0.17% is 84% lower than the average expense ratio of funds with similar holdings according to their data. If your 401K doesn’t offer Vanguard funds try to select a total stock index fund.

S&P 500 index type funds

Also recommended are S&P 500 index type funds which is a collection of the United States 500 largest company’s shares. Most are multinational companies, so they benefit from international growth.

Another fund to look at is Vanguard High Dividend Yield ETF (VYM) which seeks to track the performance of the FTSE® High Dividend Yield Index, which measures the investment return of common stocks of companies characterized by high dividend yields. Its low expense ratio of 0.10% is 91% lower than the average expense ratio of funds with similar holdings according to their data.

Long-Term Bond Funds

If you would like to consider Bond funds with decent returns for diversification and income then check into Vanguard, search for short and long-term bond funds but be aware that rising interest rates will impact your investments.

Longer term bonds payout more than short-term bonds. But look at the current interest environment and research what risks either may have. Long-Term bonds are affected more negatively in a rising interest rate environment than Short-Term Bonds.

An example of a long-term fund is Vanguard’s Long-Term Corporate Bond ETF (VCLT) which Seeks to provide a high and sustainable level of current income. It invests primarily in high-quality (investment-grade) corporate bonds, maintaining a dollar-weighted average maturity of 10 to 25 years. Its low expense ratio of 0.12% is 87% lower than the average expense ratio of funds with similar holdings according to their data. Vanguard also has Short-Term Bond funds. For example Short-Term Corporate Bond ETF (VCSH).

Plenty of funds to research

These are just a few fund ideas to look at. You can compare what you see with these to other funds and companies that you are researching. For instance, Fidelity offers similar low-cost funds to the Vanguard examples above. So will other investment companies. Do your research. Investing comes with some risks. Realize that in the long run when buying using dollar cost averaging you can buy into a fund and overall through the ups and downs of the market have positive gains over time

It is up to you.

You have choices to make to take control of your future. Choose to engage in Saving and Investing. Then you can have your saved money make money and get you to your retirement goal. The pursuit of early retirement will take saving a higher percentage of your income than the average person so your Strategic Retire Early Plan will need to track and plan for it.

“Disclaimer: This content is not provided or commissioned by any investment company or financial advisor firm. Opinions expressed here are author’s alone and are there as examples for readers to research and investigate their own best investment strategy. As the author is not a financial advisor, there is no implied recommendation being made on a professional level and readers shall invest at their own risk. There are never guarantees in investing”.

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