Question: I want to retire at 55; my husband is ready to retire now. Our home is to be paid off in September 2000, and we own an RV. We love to travel, and my husband wants to sell all of our belongings and just RV full time. I want a home base and just don’t know if I want to get rid of all my home furnishings yet. I have worked for the state for 22 years and can retire from the Texas Teachers Retirement System in five more years. I want to see this plan through, but my husband wants me to quit and start this new life with him on the road. Would giving up my full benefit retirement with TRS be a wise decision, or should I stick it out? Even when I do retire, I plan on working for a long time. (I’m close to launching a new career I’ve been taking computer classes for more than a year and would love to work in this area.) L.P., Houston Answer: I can’t answer your question as it is stated for a number of reasons. The most important is that these are primarily personal decisions, not financial decisions. While most of us like to believe that somber financial decisions tend to dictate our personal decisions, it really doesn’t work that way. Some people find a way to become happy beachcombers at 44; others convince themselves they need to continue building their assets when they are 74 and have millions of dollars. So let me make some suggestions for important conversations: Has your husband developed a financial plan that will provide you with the income necessary to sustain you in RV travel for the interminable future? (If you’re healthy enough to contemplate full-time RV travel, one of you is probably going to live to be 100.) Many people look forward to a retirement of full-time golfing (fishing, etc.) only to discover that the thrill wears off and there are more days than desire. I’ve heard this from RVers the pattern is to do a lot of heavy-duty travel for a year or two and then look for a place to settle down, with or without the RV. So I’d suggest renting storage for your furniture and making a commitment for some period of RV travel, like a long summer. Finally, while there are lots of telecommuters who do computer work, I’ve never heard of “RV-muters.” Your desire to have a longer work career seems mutually exclusive with your husband’s desire to travel full time. Again, it would be nice to pull the grim-necessity rabbit out of the financial hat and say that it would be financially foolish to take up full-time RVing today. But that would be skirting the central issue: What compromises must a couple make in order to have a life that is fulfilling for both of them? Q: Regarding your recent column on government bond funds, you say that most fixed-income funds have no reason to exist. But you advise “couch potato” investors to have a 50/50 or 75/25 mix of stocks/bonds in their portfolios. Are you advising to get out of bond and treasury funds and instead purchase five-year T-notes? I am currently invested in three funds with Vanguard: 500 Index, Total Stock Index and Intermediate Term Treasury fund, with a mix of 75 percent in the two equity funds and the remainder in the fixed-income fund. My monthly investments are split among these three funds in approximately the same ratio. Is this good, bad or too complicated, even for a couch potato? A.W., by e-mail A: You aren’t alone. Many readers were curious about this. The short answer is that when you are accumulating for retirement, you should pick one of the government funds that has consistently done better than the five-year Treasury. Vanguard GNMA does this and has beaten the vast majority of government funds cold. This will give you a higher return while providing a convenient tool for reinvesting income. Those who are already retired should dump their fixed-income funds and build a ladder based on the five-year Treasury. This will get them the return on the five-year Treasury and an average maturity of about 2.5 years. Now let me tell you why. I started doing Couch Potato Portfolio research many years before I started doing the government bond fund research. The object of Couch Potato research was to see if there was a simple way to get a competitive, lower-risk, long-term return from mutual funds. That research regularly shows that a combination of two low-cost index funds one for the S & P; 500 index, which accounts for more than 80 percent of all domestic market value, and the other for the U.S. fixed-income market would produce the returns necessary for a successful retirement and do as well as or better than most managed equity funds. Research has also regularly shown that if you purchase a five-year Treasury and spend the interest income, the Treasury will do better than government bond funds. The distinction about spending the income is important because most investment research is about accumulating assets. It assumes that you regularly add to your savings and reinvest all income. But eventually we all must start taking income from our savings. Finally, it turns out that portfolios that are making distributions need to be managed differently from portfolios that are accumulating. Why? Withdrawals change results dramatically. Q: I have 24,000 shares of stock in a computer company (Dell) that I have held for nearly eight years. In the past it has done very well. However, in the last year the price of this stock has been bouncing around in a lackluster manner. I am thinking of selling 18,000 shares and would like to know what you think of that idea. And if I do, where would be the best place to put the resulting money? Is there any place I could realistically double my money in about a year? I might point out that I don’t have a “Las Vegas mentality” I’m not the gambling type, literally or figuratively. W.R., by e-mail A: The first thing you need to do is locate yourself in probability space. According to the Morningstar database, Dell was the second best-performing stock over the last 10 years, with an annual compound return of 91.8 percent. It was also the tenth-best-performing stock over the last five years, with an annual return of 139.5 percent. So instead of looking for another 100-percent-a-year stock, the realistic question is how much of your $1.2 million in Dell stock should you sell? The answer: Sell until you can sleep better. While Dell has a bright future and may soon be a major factor in servers, Web appliances and in Web hosting, it is becoming clearer day by day that computing is moving out of personal computers and into the network. Questions about personal finance and investments may be sent to Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; or by fax: (214) 977-8776; or by e-mail: [email protected].
