I’m modifying my financial structures, and I wouldn’t mind some thoughts from you smart and beautiful people out in internet land.

First off, I’ve got a handle on the day to day and month to month finances. I track all expenses in quicken (because it can download straight from the banks and credit cards), and then I’ve got a set of Excel sheets containing monthly budget vs. actual, account balances, and a few other things. After more than 15 years of fighting with them, credit cards are a tool for me to use rather than an onerous weight on my shoulders. I’ve even successfully done the “no interest loan for a year” trick with a couple of cards – and paid it all the way off.

Now I’m trying to figure out how the hell I’m going to retire someday. This work thing is a DRAG.

I break my savings into three tiers:

* Tier 1: Pre-tax, long term: This is the 401k, the IRA, the Roth, and so on. This is money that is locked up until I’m at least 62 – or else I pay substantial fees on it. Every analysis I’ve seen indicates that – if one has the liquidity to do so – one should absolutely maximize pre-tax savings. Worst case – you wind up paying the taxes on it to get it out early. Interestingly, some portion of my mortgage payment falls in this category (assuming that the value of my house does not fall to zero) – since I get a tax deduction on it. The idea of home ownership as “enforced savings,” finally makes sense to me.

Tier 2: Post-tax, long term: This is money explicitly intended for retirement, but post tax. According to my math – I need some in this category to meet my goal of retiring prior to age 62.

Tier 3: Liquid savings: This ought to bottom out around 3 months of expenses (more would be nifty), and what’s above that ought to be available for capital expenditures. Tuition, boats, cars, helicopters, gently used nuclear submarines, diamonds so big that they require a team of eunuchs to carry, that sort of thing. The point is that this is spending money – but only on things that accrue value.

What I’m trying to work out is the best way to manage those tiers.

Tier 1 is broken out for me. My brokerage company has a rollover IRA account – and while I can trade shares around inside that account – I can’t easily move money in or out of it. That maintains the pre-tax-ness of that money, which is fine. I’ve also got the current employer’s 401k with another brokerage – and someday that’ll roll into the IRA.

I’ve also Tier 3 at the same brokerage company. It’s just a money market account. Like a checking account – but with interest. Remember savings accounts? It’s one of those.

The question, I guess, is whether I should just start locking up some of that Tier 3 cash in longer term bonds or something at the same financial institution – or if I should get an account with Treasury Direct – or what. My brokerage company can totally do this for me – and there is a convenience associated with having a single dashboard. On the other hand, I *like* the idea of having an account with the US government for my bonds and treasury bills.

The other question is whether I ought to be thinking of these as one big pool of investment and diversify the same way in each of them, or if I ought to explicitly use my rollover IRA (for example) for my longest term investments. Re-stated: Is the mix on all three categories the same (because that’s the best mix, right?) or do I balance each of them independently to reflect their various goals.

Thoughts and references welcomed.

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