By Christine Benz, (Morningstar)
CHICAGO (Morningstar) -- At first blush, Scott's goal of an early retirement appears to be out of reach. At age 48, this former military serviceman would like to find a way to retire in 10 years, having done several tours of duty in the Middle East. He has begun to save at an aggressive rate, and to date he has amassed $173,000. That's not small change, but it's not enough to fully fund a retirement that could last three decades or more.Scott is a lot closer to hitting his goal than it might seem, though. One big benefit of his military service is that he's already drawing upon a pension paying $71,000 per year; that amount will be adjusted to keep pace with the Consumer Price Index. In addition, he's working in a U.S. government job; from that position, he will get a pension generating an additional $15,000 per year when he becomes eligible for it at age 56. The $86,000 in combined pension income doesn't meet Scott's target income level of $120,000 per year, but it does mean his income demands from his portfolio are a fairly modest $34,000 per year. When Social Security for Scott and his wife is factored into the income mix, Scott's income demands from his portfolio are lower still.
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Scott's portfolio features a fairly conservative asset-allocation mix: 42% in stocks, 28% in bonds and 27% in cash. Another 2% of the portfolio, largely convertible bonds, lands in the "other" bucket. He holds his assets in a few different silos, such as a Roth IRA, a taxable brokerage account and the government TSP. His Roth and taxable accounts amount to about three-fourths of his total assets, with the remainder in the TSP.
Nearly all of Scott's holdings possess good Morningstar Ratings for stocks or funds (though a handful aren't under coverage). I'm also impressed by his well-reasoned investment approach and the discipline with which he adheres to it. More important, his portfolio appears to be on track to meet his income needs in 10 years. Plugging his portfolio into Morningstar's Asset Allocator tool, Scott's portfolio is on track to deliver his income goal of $34,000 for 30 years, even without factoring in his Social Security benefit.
Twitter and become a fan on Facebook. -- Written by Christine Benz, director of personal finance for Morningstar in Chicago. Benz is also editor of Morningstar Practical Finance, a monthly personal-finance newsletter, and writes a weekly column on Morningstar.com.