help with saving for retirement.

[jblomenberg16]

Lots of good advice thus far. Depending on your situation, many folks consider a 10-10-80 rule of thumb to be a effective plan. 10% in Savings (like retirement, etc.) 10% to the Church and/or Charity, Spend 80% on bills, taxes, living expenses, etc.


If you can swing it, putting more into savings now means you will have more later for retirement...so long as what you are investing in continues to have a positive rate of return, and that rate of return is greater than inflation (may be tough over the short term, but should be possible in the long term).

Also keep in mind the rule of 72. That says that it will take 72 / the interest rate # of years for your money to double.

To make the math easy, lets say you invest $1000 in a and investment making 6% every year (wouldn't that be nice!!!). In 12 years you'll have $2000. If you can keep that constant 6% ROR in 24 years you'd have $4000 if you keep reinvesting the interest you've earned, and $8000 in 36 years.


Like some of the others said, investing for retirement is a long term endeavor. Very few people get rich quick in the market, but a lot of people get poor quick by gambling with the market. If you can be slow and steady, you should be able to build up a nice nest egg.

The other thing to remember is that retirement income is going to be what you use to cover all of your living expenses. The lower your living expenses when you retire, the less you need and / or the more you can spend on "toys." One of the best ways to reduce your living expenses at the time of retirement is to have your mortgage, car payments, and credit cards paid off.

 

[45calibre]

thank you all for your info. my employer does not match whatsoever to our 401k. they stopped in 2008 in order to keep their premiums low for health insurance, which they are.

i dont plan on contributing up to the max on my ira simply because i cant, im only working part-time(no match for full-time either) and i'll only be making $15k a year.

has anyone had experience with investment firms? i was leaning more toward my bank because its all in one place.

 

[singlestacksig]

the money you put into a regular IRA is PRE tax, a Roth you have to pay tax on money first..

 

[ATOMonkey]

I'm going to buck the system here and tell you to put your money into a regular old savings account or MAYBE a CD (rates are stupid low though).

Why? Being a young man, I assume you're going to be buying a house at some point. I can guarantee you'll save more money on interest and PMI than you'll make on a mutual fund.

Once you get your house down payment put together, then I would start thinking about retirement funds.

This advice ONLY applies to companies that don't match contributions though. If you're getting a match, that's a no brainer.

 

[pjcalla]

i just started a new job and they offer 401K but they do not match any of my contributions. i wanna start saving for retirement while im young, im 23.

would it be better to go with some sort of IRA ay my bank instead? roth or traditional?

what i had in mind was to look at my employers investments and see if they offer a better rate of return than my bank IRA will and go from there.

any info is greatly appreciated.

I would go with a ROTH IRA as others have said. Yes, it is taxed before you put it in, but it grows and can be taken out tax free. Your max contribution is $5,000/yr. (Publication 590 (2010), Individual Retirement Arrangements (IRAs))

A traditional IRA is mostly for people that need a tax benefit or make too much money to be able to contribute to a ROTH.

The ROTH is the only way to go for you. Basically, when you are young, your tax rate is lower (presumably) because you are making less. You end up paying 10% (or whatever your tax rate is) on your contribution to the ROTH, and it grows tax free. On the other hand, if you take the benefit from the deduction from a contribution to a traditional IRA, you are only getting 10% of the contribution in a "tax benefit." But, you will be taxed at a higher rate when you start taking your drawls. I don't know if that makes sense, I know it is kind of rambling.

On to the investment company. I use Scottrade. They set it up for free, and you can make contributions over the internet or by taking a check into one of their brick and mortar fronts. You will have to do your own research when buying stocks, mutual funds, etc., but you don't really want to eat into your principal paying someone else to make decisions for you, especially when you are just starting out. If you don't feel comfortable doing that, I think Schwab has something similar, but will give you advice (for a fee). If you are just wanting to put your money into a CD, then your bank can do that in an IRA. Just remember, usually the CDs will automatically rollover, so if you want to change your investment strategy, you will have to be on top of the maturities.

Good luck, and you are smart for wanting to start so early. Let me know if you need anything else.


ETA: I just saw an ad for Scottrade, and apparently, they offer free education, assistance and research tools. They also have $7 trades, which in comparison to my bank @ $40, is a steal.

 

[PistolBob]

the money you put into a regular IRA is PRE tax, a Roth you have to pay tax on money first..

The money coming out of a regular IRA is 100% taxable.

The money coming out of a Roth IRA is 100% NON-TAXABLE.

Go with the Roth.

 

[ATOMonkey]

wrong thread!

 

[pudly]

I'll agree with pjcalla. Go with an investment firm. I have accounts at 4 different ones (working on consolidating), and recommend Scottrade or Vanguard. Both have lots of options, provide excellent online research tools, and are low cost. Your local bank is almost guaranteed to be higher cost with fewer options.

Since you are probably still new to learning about investing, you should probably just invest in a single stock mutual fund in your IRA. Later on as your nest egg and knowledge grows, you can look into branching into other forms of investments.

 

[45calibre]

as far as i know my bank has no fees for an IRA.

also i beleive you can make withdrawals out of IRA's for hardships and first time buying a home, is that correct?

 

[Jay]

If you're former military, or if your father was military, contact USAA Investments. I'm not sure what's available now, but I came out ok on long term stuff, thanks to their investment folks.

1-800-531-8181

 

[pudly]

as far as i know my bank has no fees for an IRA.

also i beleive you can make withdrawals out of IRA's for hardships and first time buying a home, is that correct?

There are many kinds of fees- fees at purchase time, fees at sell time, admin fees during the life of the investment. You will pretty much always have at least one.

Yes, you can withdraw for those cases, but if you are planning to withdraw, you might be best off not putting the money into a retirement fund in the first place.

FYI- I'm not a financial planner. There is some very good info in this thread, but you should do some additional reading.

 

[pjcalla]

as far as i know my bank has no fees for an IRA.

also i beleive you can make withdrawals out of IRA's for hardships and first time buying a home, is that correct?

The fees I was talking about were to make a "trade." Buying/selling stocks, etc. There should not be any fees to set up an IRA.

Yes, you can take distributions early, but you could end up incurring penaltiies/taxes, depending on your circumstances. Yes, you can take a $10,000 distribution on a first home. I don't know what you consider a "hardship," but there is a provision for medical expenses. Scroll down to the bottom:

Publication 590 (2010), Individual Retirement Arrangements (IRAs)

 

[JoshuaW]

I'm going to buck the system here and tell you to put your money into a regular old savings account or MAYBE a CD (rates are stupid low though).

Why? Being a young man, I assume you're going to be buying a house at some point. I can guarantee you'll save more money on interest and PMI than you'll make on a mutual fund.

Once you get your house down payment put together, then I would start thinking about retirement funds.

This advice ONLY applies to companies that don't match contributions though. If you're getting a match, that's a no brainer.

I disagree. I have had a lot of people try to tell me that, but it really depends on your schedule. If you think you might be buying a house in the next five years, interest rates will still be low enough that you will muster a better return on investment actually investing.

In fact, when I looked at the numbers I could have bought my house on a 15 year loan and really cut down on my investing, but it didnt make any sense. I have a 30 year with a 4.875% loan. Up until a few days ago I was consistently getting about a 10% return on my investments. The only time it makes sense to pay the extra instead of investing it is if your rate of return will be greater. It will be quite a while before rates are in the 6-7% range again (unless you are sub-prime), and if you are investing aggressively, you should be good to go.

Remember, that does assume you are investing aggressively and you might be buying a house in the next few years before rates are up. If you arent going to buy a house for 10 years, you probably are better off saving a little bit more. If you do decide to save more for a house, be sure to still invest as much as possible. Set a goal, and keep to it. There is still a lot of benefit to having a bit of an account started now, such as the ability to borrow against it if times get bad, or if you have to lay off contributing for a few years, you still have it growing.

 

[hornadylnl]

All of this is assuming your 401k's or IRA's won't be confiscated for the greater good sometime in the future. Don't thing that will happen? Some in congress are already talking about it now.

 

[ATOMonkey]

I disagree. I have had a lot of people try to tell me that, but it really depends on your schedule. If you think you might be buying a house in the next five years, interest rates will still be low enough that you will muster a better return on investment actually investing.

In fact, when I looked at the numbers I could have bought my house on a 15 year loan and really cut down on my investing, but it didnt make any sense. I have a 30 year with a 4.875% loan. Up until a few days ago I was consistently getting about a 10% return on my investments. The only time it makes sense to pay the extra instead of investing it is if your rate of return will be greater. It will be quite a while before rates are in the 6-7% range again (unless you are sub-prime), and if you are investing aggressively, you should be good to go.

Remember, that does assume you are investing aggressively and you might be buying a house in the next few years before rates are up. If you arent going to buy a house for 10 years, you probably are better off saving a little bit more. If you do decide to save more for a house, be sure to still invest as much as possible. Set a goal, and keep to it. There is still a lot of benefit to having a bit of an account started now, such as the ability to borrow against it if times get bad, or if you have to lay off contributing for a few years, you still have it growing.

I'm not arguing with that.

How long will it take to save up a 20% down payment though? Most people don't make enough to do both, is the main reason behind my advice.

If you don't get 20%, the PMI will wipe out any gains your might make in rate differences.

Also need to account for family plans and what part a house plays in those plans, and how renting vs. ownership compares both financially and intangibly. How long do you want to be paying on your house? Will your kids go to college? Will you pay for it? Will you pay for your daughter's wedding? etc etc etc... There are a lot of advantages, both financially, and psychologically, to not having a house payment later in life.

Just comparing rates doesn't really give the whole picture, IMO.

 

[balorg]

I would check to if your company offers a ROTH 401k. It works just like a normal 401k but instead your contributions are after-tax instead of before taxes.

Link: http://en.wikipedia.org/wiki/Roth_401(k)

 

[Lucas156]

All of this is assuming your 401k's or IRA's won't be confiscated for the greater good sometime in the future. Don't thing that will happen? Some in congress are already talking about it now.

Do you put any money in an IRA or 401K?

 

[hornadylnl]

Do you put any money in an IRA or 401K?

Currently put 2% in my 401k. Used to put 5 but my employer dropped tgeir match during the hard times a few years ago. I've got to have a smaller balance then what I and my employer have contributed. I believe the glory days of the market are over.