Maurice Greer, 53, was a late starter in saving for retirement.
After a decade in the Air Force and eight years in retail—during which he’d saved $10,000 in a 401(k) but spent it when a sports injury threw him out of work—he decided in 2000 to start taking classes toward a certification in information technology. “I didn’t like the idea of getting old and having no money, so I had to catch up,” he says.
At age 40, newly minted with the tech credential, he moved to the Washington, D.C., area for an entry-level IT job with a Pentagon contractor. Thirteen years and five government jobs later, he earns $103,000 a year helping run the FBI’s computer systems. Along the way, he’s piled up $261,000 for retirement and $43,000 in the bank.
His aggressive investing style (80% in stocks) and savings plan (20% of pay) have brought him far. Now he wants to up the ante.
Greer, who has the government’s second-highest security clearance, has grown weary of the demands of the job, not to mention the polygraph tests and intrusive security checks the FBI requires. “My work is very stressful,” he says. “Life is short, and I want to enjoy it.” To travel more and pursue his photography passion, Greer wants to retire in seven to 10 years—the sooner the better.
In hopes of growing his money faster and making his dream a reality, Greer is considering buying individual stocks, perhaps big brand names like Coke and McDonald’s.
Investment adviser Riyad M. Said of TA Capital Management in Washington, D.C., doesn’t think that’s wise. With such a short time horizon, Greer should dial back (rather than crank up) the risk in his portfolio, Said says. “If he were 20 years from retirement, I’d say fine, stay aggressive,” he notes. “But when you’re seven to 10 years away, there’s a big risk that your portfolio could take a huge hit right when you want to take money out.”
Reduce risk: Said suggests Greer turn down his equity exposure to 60% of his portfolio, with 40% in domestic and 20% in international funds. A quarter of Greer’s portfolio should go into fixed income, with 15% in U.S. bonds through MetWest Total Return and 10% international through SPDR Barclays International Treasury Bond ETF SPDR SERIES TRUST BLOOMBERG BARCLAYS INTNL TR
. Another 10% should go into alternatives—Said suggests Baron Real Estate Fund
and Alerian MLP ALPS ETF TRUST ALERIAN MLP ETF
—and 5% in cash.
Aim for a target: Greer’s expenses are modest: With a mortgage payment of $900 on his condo and no other debt, he spends only about $2,700 a month. At that rate, he’ll need $800,000 to retire in seven years or $730,000 to retire in 10, assuming that he takes Social Security at 63. To reach these goals, he will need to save $44,000 or $24,000 per year, respectively, based on a 6% to 6.5% average return.
Invest tax-efficiently: A disciplined saver, Greer sets aside $20,000 a year in his 401(k)—on which he gets a $2,000 match—and $10,000 a year in a savings account.
Rather than sock away so much in the bank, he should take full advantage of 401(k) catch-up provisions for those aged 50-plus to contribute a total of $24,000 a year to that account. Then he should put the remaining $6,000 in a new brokerage account invested in an index fund or ETF of dividend-paying stocks (the tax consequences will be modest, and he can reinvest the dividends). One option: PowerShares S&P 500 Low Volatility ETF INVESCO EXCH TRDII S&P 500 LOW VOLATILITY ETF
. These steps will let him save enough to retire in 10 years and get him started toward an earlier quit date.
Greer currently overpays $425 a month on his mortgage; if he stops doing that, he can free up $5,100 more a year. Additionally, he will earn his bachelor’s degree in cybersecurity soon, which would qualify him for positions that could increase his salary by 30%. Making a job change and putting all his extra earnings in the dividend fund should allow him to save enough to retire in seven years—though a new position could be more stressful than his current one. “If that would increase my chances of retiring early,” Greer says, “the tradeoff would be well worth it.”