RumblingRosco
Member
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How to Invest for Retirement
- Thread starter Piecake
- Start date
Darren870
Member
Why not look at using some for a house? or some other kind of investment? Unless you need to catch up on your retirement accounts, but it seems you already putting away 17% of your income towards retirement, which is a good amount.
I guess also if you plan on doing this put $15,000 into the stock market this way the money is growing till you can put it in the next $5,500.
Randolph Freelander
Member
Good grief, the stock market fire sale continues. S&P is down another 1.64% today, and is down 6.79% from the market high (at closing) on September 18. Note that on September 19, I posted this:
I suppose this is my fault.
I suppose this is my fault.
First all, great thread. Contains a lot of information and I'll be bookmarking for future use. Thanks to everyone who has contributed. Now to my predicament and expectations and why I wish to invest.
I'm 31, engaged to a beautiful woman, and work at my father's company. I'll soon be moving to Raleigh to open up another branch and my fiance will be helping out. However, both of us (some of you may know this already so excuse me for repetition) have serious health issues that have resulted in double-lung transplants for the both of us. Neither of us will live to 65, and frankly I'll be surprised if we make it to 40. That being said, we've beaten the odds a number of times and I want to start preparing for the possibility that I die before her.
Essentially I want to invest in products that are somewhat high yield yet somewhat safe (I know, probably impossible) that allow us to grow a fund that one can rely upon in the event of a death. Something that would enable her to draw money from each month (fixed income) that would alleviate any financial stress. What are my options?
At the moment, I can put close to $10k in various accounts. We have decided to forgo an expensive wedding so that we could apply those funds (Most likely $25-30k) to a down payment on a house but I'm thinking of taking a percentage of those funds and also applying it to my initial investment.
By virtue of working for my father's company our monthly income will be very generous, ranging at first from $75k/year to (based on projections and current city outputs) $35k/month within a few years. We have no car loans, no student loans, and no credit card debt. Of course, that'll change with the purchase of a home but that's at least a year away and we don't plan on purchasing a new vehicle until the home is settled.
I would greatly appreciate any tips on resources, research, and funds that have worked for you! I have bought The Intelligent Asset Allocator, Stocks in the Long Run, and The Intelligent Investor and have started to take some online Finance courses, but the more info the better.
TL;DR: Want to start investing in funds by end of year that would provide my fiance with ability to draw upon for perpetuity ($3-5k/month?) in the event of my death. Given our health problems and time frame, would need funds that provide maximum return without having to veer towards funds that are rife with uncertainty. I know, a lot to ask for.
I'm 31, engaged to a beautiful woman, and work at my father's company. I'll soon be moving to Raleigh to open up another branch and my fiance will be helping out. However, both of us (some of you may know this already so excuse me for repetition) have serious health issues that have resulted in double-lung transplants for the both of us. Neither of us will live to 65, and frankly I'll be surprised if we make it to 40. That being said, we've beaten the odds a number of times and I want to start preparing for the possibility that I die before her.
Essentially I want to invest in products that are somewhat high yield yet somewhat safe (I know, probably impossible) that allow us to grow a fund that one can rely upon in the event of a death. Something that would enable her to draw money from each month (fixed income) that would alleviate any financial stress. What are my options?
At the moment, I can put close to $10k in various accounts. We have decided to forgo an expensive wedding so that we could apply those funds (Most likely $25-30k) to a down payment on a house but I'm thinking of taking a percentage of those funds and also applying it to my initial investment.
By virtue of working for my father's company our monthly income will be very generous, ranging at first from $75k/year to (based on projections and current city outputs) $35k/month within a few years. We have no car loans, no student loans, and no credit card debt. Of course, that'll change with the purchase of a home but that's at least a year away and we don't plan on purchasing a new vehicle until the home is settled.
I would greatly appreciate any tips on resources, research, and funds that have worked for you! I have bought The Intelligent Asset Allocator, Stocks in the Long Run, and The Intelligent Investor and have started to take some online Finance courses, but the more info the better.
TL;DR: Want to start investing in funds by end of year that would provide my fiance with ability to draw upon for perpetuity ($3-5k/month?) in the event of my death. Given our health problems and time frame, would need funds that provide maximum return without having to veer towards funds that are rife with uncertainty. I know, a lot to ask for.
BannedEpisode
Member
This might be a stupid question but are you eligible for meaningful life insurance? My gut says no but that would be the obvious first step.
I'll let the people with actual financial knowledge comment on your actual question.
We actually have someone looking into that right now.
I should note that as of now, I am still legally classified as "disabled" by the Department of Defense. This classification has allowed me to retain Tricare past the age of 21, but once I get married I therefore "prove" self-sufficiency, lose my Tricare, and will be acquiring health insurance on the ACA marketplace. In addition, because of this status I cannot legally invest any money, not one dime, into any fund, stock, bond, etc until I am off the program. Thus my father will just handle the investments until I'm ready to transition. Is that possible? Switching account holders? Beyond that (Ha, just that?) I'm not sure what role, if any, the disabled aspect can or will play on investments.
EDIT: So it appears that we we would be penalized for extracting potential earnings of an IRA to the tune of 10%? Moreover, due to age floors in Roth IRA's we could only extract our principal amount if need be. Hrmm.
Darren870
Member
Note, I am not a financial adviser, this is just a hobby of mine.
Yes, if you withdraw from a retirement account you are penalized, and heavily. My friend did it and he wound up losing 40% of it. It's not worth it, however there are certain cases that you can withdraw from a retirement account. Health issues & death being some of them. Sometimes though you must pay them back, so it might not be worth it.
Your situation is very unique and you probably won't find the information you are looking for here, but it doesn't hurt to ask. You never know!
If you honestly think you will pass in the next 10 years then I don't see the point in looking into retirement accounts. You might as well open your own brokerage account and put your money in there. Any long term gains will only be taxed at ~15% and the money is just as safe is if it were in a retirement account. This way you can also withdraw from the account and not pay any penalty fees at a later date.
There is no funds that provide maximum returns. It is the stock market and everything varies day by day. You can have safe investments and only do your homework and plan accordingly.
I would suggest life insurance also, but be sure to shop around and know the full T&C. You are obviously high risk so your monthly installments will be high. High enough to the point where it might not be worth it. Also talk to an independent adviser about the policy before you purchase it. Most policies are sold by sales people and their only interest is themselves. They could throw you junk that may not be worth it.
Hopefully you live way past 40 though, there are plenty of people whom have beaten the odds, so never stop fighting!
That's a tough question. I think the biggest problem here is that you don't know when you will need the money, and considering that it is health related that when might mean a lot of money. I don't know if a heavy stock investment is suitable in this situation then because the market could be absolutely tanking when you absolutely need that money. That is not a good situation to be in.
So yea, I would probably look into other ways of protecting yourself. I don't know if there are better options out there since I don't really pay attention to them, but in your situation I think it is something you should definitely look into.
anonymous_abc
Member
Nothing new then.
So, bringing up Roth IRA vs. Traditional IRA again...
I have always been firmly in the Roth IRA camp. I can't see taxes ever going down, and the tax-free growth just sounds amazing. I realize there has to be a case for Traditional IRA, though. Considering the contributions to a Roth are all from dollars from your highest tax bracket, I've started to rethink my 'absolute-Roth' position.
Can anyone give me a specific example of a case where one would be better off going for a Traditional IRA?
I have always been firmly in the Roth IRA camp. I can't see taxes ever going down, and the tax-free growth just sounds amazing. I realize there has to be a case for Traditional IRA, though. Considering the contributions to a Roth are all from dollars from your highest tax bracket, I've started to rethink my 'absolute-Roth' position.
Can anyone give me a specific example of a case where one would be better off going for a Traditional IRA?
Clockblockers
Member
I've know people who made just enough to move up a tax bracket and they used a traditional IRA and their 401K to lower their taxable income and keep them in a lower tax bracket for the year. I don't know if that's the right choice but it doesn't sound like a bad idea
I'm not sure this is the thread for it, but I would really like to see a broader discussion on what retirement actually is. And what "investing" for retirement actually means. To me working from age 20 something to age 50 or 60 something just so I can "retire" doesn't seem all that appealing. The other idea of going to work every day 9-5 just to have someone else to tell me what to do while my kid is taken care of by someone else doesn't seem that appealing either. To me these seem so old fashioned, just like the idea of your born, you go to school you go to college you get a job.
Thankfully my wife is in complete agreement with me. So what we do for planning our retirement is max out our 401k/403b and IRAs, and then almost all our disposable income goes towards real estate. We buy and sell mobile homes, owner financed at 10% interest on a 3-7 year loan. When we move we wont be selling our house, we'll be renting it to add to our passive income. We currently have 7 mobile homes and the idea is to get to 15 and then maybe buy a park. With the purpose being to build our passive income to a point where neither of us has to go to work if we don't want to. Potentially being able to "retire" before age 35 would be fantastic.
Sorry if this is too off topic, I guess I kind of wanted to throw out other options for retirement.
Thankfully my wife is in complete agreement with me. So what we do for planning our retirement is max out our 401k/403b and IRAs, and then almost all our disposable income goes towards real estate. We buy and sell mobile homes, owner financed at 10% interest on a 3-7 year loan. When we move we wont be selling our house, we'll be renting it to add to our passive income. We currently have 7 mobile homes and the idea is to get to 15 and then maybe buy a park. With the purpose being to build our passive income to a point where neither of us has to go to work if we don't want to. Potentially being able to "retire" before age 35 would be fantastic.
Sorry if this is too off topic, I guess I kind of wanted to throw out other options for retirement.
chaosblade
Unconfirmed Member
That sounds more like self-employment than retirement.
King Cobra
Banned
Had me in stitches man.
Well sure, traditional IRA will always have an immediate benefit of deferred taxes. I'm trying to figure out if the tax free growth of a Roth is ever not worth it in the long run.
I would say yes because by age 70.5 law requires you to start withdrawing traditional ira funds at a certain rate, and that seems confusing. Only seems to make filing taxes complicated.
With people living longer, I think the law may change later, but most people would just argue for status quo.
If you have student loans and are on the income based repayment plan, Traditional IRA might be better. If the above applies to you and you are a public servant going for 10 year loan forgiveness, traditional IRA is definitely better.
You might like this site
http://www.mrmoneymustache.com/
Randolph Freelander
Member
The general rule is the higher your top marginal rate, the more attactive a pre-tax strategy is over the Roth. Conversely, the lower your top rate is, the more attractive the Roth is. If you're fortunate (or want to hedge your bets), you can take advantage of both strategies.
I have no hard guidance here, as you do have to sort of predict or understand where future tax rates will go while also knowing where you are now. But the simple fact is that investing in Roth vehicles is more expensive up front.
Let's just look at an example that has no surprises. You have $7000 you could invest pre-tax this year, and not a dollar more. Your top marginal rate is 28%. You plan to hold that investment for 30 years. Let's hold the average rate of return at 9%. So what happens? Well, the marginal rate isn't meaningful to you right now -- you're avoiding it. So your $7000 at 9% for 30 years grows to $92,873.75.
Let's take that same investment amount and invest it in a Roth account. You had not a dollar more than $7000, but now you have to pay taxes on it up front, which (taking just the federal) knocks your amount down to $5040 (if the most you could afford before taxes was X, it is necessarily true that the most you can afford after taxes is [1 - tax rate] times X). Over 30 years at 9%, it grows to $66,869.10. If you notice, that's 28% less than if you had invested pre-tax. There's no magic -- you started with 28% less, you end with 28% less. But how much less is it really, since you expect to not pay any additional (federal) taxes on it? Well, that's where predictions of future tax rates come in. But instead of predicting your top marginal rate in 30 years, you'll instead need to predict your average rate across all income levels. Even if you expect tax rates to rise (or if you expect to be in higher brackets), is your average rate going to rise above 28%? If you think it is, then the Roth is more attractive to you right now, pay the lower rate now. If you think it will not be, avoid the higher taxes now, pay the lower taxes later.
Personally, my top marginal rate is indeed 28%. However, my average tax rate in the most recent tax year was in the mid-teens. For me, I did not think it was worth prioritizing a Roth contribution over a pre-tax contribution. I do not expect marginal rates to rise significantly, and certainly not to the degree that would make my average tax rate in the future to be higher than my top marginal tax rate now. Therefore, it's my personal decision to favor pre-tax contributions and then add the Roth after I have met my pre-tax maximums. I am doing that this year, and I hope to continue doing so indefinitely into the future. Your top marginal rate might differ, as may your expectations for your average rate in the future, and therefore, your strategy can and should be different, as well.
Rentahamster
Rodent Whores
The only thing I want to caution is being a landlord can be a full time job itself. I have a coworker that has three rental homes and they all went empty at once and one had some problems. She worked her ass off all summer on these properties. That is not "retirement" to me. More like being self employed which it seems you and your wife enjoy.
There is something that I've struggled to find.
I want to retire before 60. I have spent the past 8 years of my working life contributing to my 401k and an IRA(rolled over from a previous 401k).
How do I invest if I want to avoid early penalties?
Should I open a brokerage account and go ahead and invest in stock indexes with my taxed income?
I want to retire before 60. I have spent the past 8 years of my working life contributing to my 401k and an IRA(rolled over from a previous 401k).
How do I invest if I want to avoid early penalties?
Should I open a brokerage account and go ahead and invest in stock indexes with my taxed income?
Great explanation, thanks!
I definitely hope to be making significantly more later in life, but I'm doing pretty decent now. My average tax rate is lower than yours since I'm in the 25% bracket, but since Roth contributions are essentially your highest taxed dollars (which I need to keep reminding myself), I definitely have some predictive calculations to do.
Maybe I'll open a Traditional IRA and split the IRA max every year. I suppose middle ground can't burn me either way.
Pretty sure that's your only option.
Well, if you contribute to a 401k, you should already have a decent balance between pre-tax and after-tax retirement accounts. My guess, is that you probably have more in pre-tax accounts.
That's true. I'm getting 7% of my salary added to my 403b from my employer (on 3% contributions!) so my 403b is higher than my Roth.
And now back to the calculations...thanks for nothing Piecake!
Should I open a Roth IRA or pay off my car? I owe about $6500 on my car (halfway through a 6 year loan at 5% interest), and I already have around $38,000 in my 401k after 5.5 years of working (I'm 27 and contribute 8%, employer throws in another 3%).
Or should I toss a couple grand towards my mortgage? Or continue hoarding in my savings account?
Or should I toss a couple grand towards my mortgage? Or continue hoarding in my savings account?
Randolph Freelander
Member
Your interest rate and balance are getting into that tweener area where the rate is just high enough and the balance just low enough to annoy me into saying "just pay the stupid thing off already." Still, I'd probably lean towards getting the Roth funded and then using excess to get rid of that loan. Establishing the Roth now will encourage your saving habits in the future, and the historical rate of return of the market (while not being guaranteed) is going to exceed the 5% you're paying on the loan. Choose for yourself, but the Roth is my pick.
After all of that, consider your "hoarded" funds in your savings account. Beyond keeping a few months expenses, you might consider getting those dollars working for you. Fund your Roth, increase your 401K contributions, and look at additional self-directed accounts, likely in that order given your age and likely earnings. But I must say you're off to a good start, certainly being wiser than I was at your age.
To add (and Randalph more or less said this), my suggestion is to keep your retirement strategy going regardless of how tempting it is to shift funds away from it. Unless you are in a situation with really high interest rates (and you're not), it's best to fund the retirement, then shift the excess to the other 'buckets' and pay those down at an accelerated rate. From a purely financial standpoint pay down the things that have the highest interest rate first, then move to the next. From a life/stress standpoint, pay down the debts that bother you the most.
Using some of those hoarded funds would be a good way to do it. Keep a few months savings and put the rest to work.
again like I said, what does retirement mean? You guys probably spend time managing your portfolios and or researching things to invest, what's the difference, that's still work? Or you pay someone else to do it for you.
We have 7 homes and we've only had one person move out, which was fine by us cause all his money was forfeited and became "rent" and we turned around and sold the house in less than a month for the same price.
Its really not that much work, in fact we are liked so much by our clients that the last 3 homes we've bought, we literally did nothing other than provide the money to buy the house. They came to us and said, hey my friend/cousin/brother wants this house will you finance it for us? Do we occasionally have to chase down payments, of course, but that usually involves nothing more than a few text messages or a phone call.
Waiting till 60+ to "retire" and then "enjoy" the fruits of your labor seems so backwards.
love this site. Thank you I had not seen it before. Interesting that he also considers himself retired.
But good to hear some of the things the wife and I already do he recommends, of course he gave my some other good ideas and ill keep reading his blog.
A lot of us in the thread are passive index fund investors, so we spend very little time managing the funds. I do an annual rebalance, but otherwise am entirely hands-off all year.
That said, I agree with your definition of retirement. I plan to be very busy after I stop "working" - I'll just be working on stuff I want to do, rather than be paid to do. The happiest retirees I see are those who are keeping busy doing what the love. It really just depends on what you wan to do in retirement. If you enjoy property management, then do it. It's just a trade off on time for other things.
Darren870
Member
Pretty much this. It all depends on what you want to do as you age. I agree with you that If you want to retire beforehand you need to plan accordingly. This is what I do as well. My portfolio includes stocks and properties. I also have loads of retirement accounts as well though. There is no reason to throw away that free money that you are given so you should contribute to at least get the match. The bonus is once you hit the retirement age you have extra money to spend and live off of.
Frustrated_me
Member
Fuck it.
Opened up a TFSA account, hoping to dump 5k per year over 12 months.
Have an ongoing 3k per year in RRSPs.
Hoping to also dump 500 per month into another savings.
The way I see it is the less I have the less I will spend. If I have it, I will spend it.
Opened up a TFSA account, hoping to dump 5k per year over 12 months.
Have an ongoing 3k per year in RRSPs.
Hoping to also dump 500 per month into another savings.
The way I see it is the less I have the less I will spend. If I have it, I will spend it.
anonymous_abc
Member
A friend recommended the book, "I Will Teach You To Be Rich", which has a terrible and gimicky title, but has some good advice. A lot of which matches up with the investment advice in this thread.
In that book he shuns budgets as something that is not going to happen for the average person. Which for me is the freaking truth, everytime I try to hammer in a budget it just goes goofy or I stop following it, or whatever.
His suggestion is to Invest and Save right after deposits. Preferably by automated withdraws and such. Then use your remaining money as you see fit. It's a matter of out smarting yourself. Use the remaining money as you will and without guilt, because you know that you have already saved the amount you wanted to.
I also don't agree with strict budgeting in most cases. It is way too much work to be worth it in 90% of cases.
I do however do rough budgeting, just a basic 'here's how much money I need to pay the bills each month'. I then keep track of two numbers, the delta between how much I budgeted and how much I actually spent(and use this to increase the budget estimate when needed), and the delta between how much I spent and how much I made(minus investment income). I track the latter with the goal of consistently increasing it over time.
This is a much easier way of tracking your money to ensure that you are staying within your means, as if you funnel all your income through a single account, basically everything is on your monthly statement, and you don't have to go digging through bills and receipts to ensure you didn't leave anything out.
Where itemized budgets are useful is more for auditing your finances to see where you can make improvements, it can be helpful from time to time to see in numbers that you spend 1200 a year on starbucks or something, to motivate you to change those kinds of lifestyle things that could help you save more. But as far as 'making a budget and sticking to it' I don't think many people are capable of that kind of discipline.
When I retiree I plan on spending 4-8 hours a year managing my portfolio. I can tell you my plan does not include property management. That is work and I want to enjoy life. I'm really happy for you that it's worked out so far for you. Like I said I have spent significant time talking to people that do property management and it's not always going to be "smooth sailing" as your describing it. Luckily it sounds like you have never had to deal with major problems. I hope that continues for you.
Herpes Reasons
Banned
As someone who develops personal pension plans for business owners and families alike, the most important issue to be cognizant about prepping for retirement is diversifying your tax buckets. Its great to be in the market but don't ignore the different types of taxes that will help determine just how much money you'll truly have once you reach full retirement age.
I am a programmer and I honestly can't see myself not programming. I started at 16, scripting levels for Starcraft for fun and turned that experience into a career. My next project or idea will always be there, ready for me to code up. So in a way I will always be working.
Retirement for me, means never having to rely on a job for income. To reach financial sustainability with only what I have saved. Empowering myself to pick projects from what I want to do as opposed to what I want to make and still being able to live my fairly comfortable life.
Could you go into more detail on this? Do you mean using a 401k for pre-tax, a Roth IRA for after tax, and other types of savings?
Sorry, bringing up Traditional IRA vs Roth IRA, but with a different case.
I got my girlfriend started with a Roth IRA a few months ago, but now I'm trying to figure out if Traditional would be better. She takes the standard deduction since she doesn't have much to itemize come tax time.
My question is, if you don't itemize your deductions (just take the standard deduction), do you not benefit at all from a Traditional IRA. I'm thinking the answer is yes, since you won't have anything to put for deductions on your tax return if you take the standard deduction, but I'm not sure if I'm missing something.
The only way I can think that I may be wrong is if Traditional IRA contributions have their own deduction applied outside of the standard/itemized deductions.
I got my girlfriend started with a Roth IRA a few months ago, but now I'm trying to figure out if Traditional would be better. She takes the standard deduction since she doesn't have much to itemize come tax time.
My question is, if you don't itemize your deductions (just take the standard deduction), do you not benefit at all from a Traditional IRA. I'm thinking the answer is yes, since you won't have anything to put for deductions on your tax return if you take the standard deduction, but I'm not sure if I'm missing something.
The only way I can think that I may be wrong is if Traditional IRA contributions have their own deduction applied outside of the standard/itemized deductions.
You still get the benefit even if you do not itemize your deductions. I just checked and it is line 32 on the 1040 form. That is under adjusted gross income, which adjusts your income (down) before you input all the taxes and credits and deductions on the second page.
Traditional IRA contributions are adjustments to income. They reduce your adjusted gross income before your standard deductions or exemptions come into play.
If after her standard deduction and exemption she still has taxable income, then yes a Traditional IRA contribution would reduce her tax liability.
RadioJoNES64
Banned
I'm going to be in college soon and I am very keen on investing in retirement early. From what I understand, I would be putting a certain amount of money into an index fund per year, and by the time I retire, I will have the total amount I invested plus more due to profits from the investments of the index stock. My question is, where do I physically go to start my investments and is it complicated?
The easiest way is to go to a site like Vanguard or Fidelity and open an account. From there, you can open an IRA. Once you do that, you can buy index funds and put those in your IRA to gain the tax benefits from that. It is a pretty simple process and I am sure those sites will walk you through it.
One important point though is that the money you put into an IRA needs to be earned income. Basically, what that means is if you put 5.5k into an IRA for this year, you need to have earned at least 5.5k during that year
RadioJoNES64
Banned
Ok, thank you very much.
Ok...so I just did some research and saw that you only get to claim a partial deduction for Traditional IRA contributions if your MAGI is between $60,000-70,000. Over $70,000 and you can't deduct any of it. (for people with work retirement plans)
So, if you make over $70,000, then a Roth IRA is the only sensible choice?
If you make over the limit for Roth, then an IRA is completely pointless, right? Why not just do an normal investment and only pay the capital gains taxes?
I'm not affected by this at this time, my MAGI is probably ~$49,000, but my taxes are complicated as my grandfather is dishing out investments to his grandkids which we claim on our taxes so I don't know if I'm in the partial-deduction territory.
I'm just sticking with my Roth...this is getting too confusing.
I guess if I ever become self-employed, which is my goal, I can revisit Traditional IRA.
So, if you make over $70,000, then a Roth IRA is the only sensible choice?
If you make over the limit for Roth, then an IRA is completely pointless, right? Why not just do an normal investment and only pay the capital gains taxes?
I'm not affected by this at this time, my MAGI is probably ~$49,000, but my taxes are complicated as my grandfather is dishing out investments to his grandkids which we claim on our taxes so I don't know if I'm in the partial-deduction territory.
I'm just sticking with my Roth...this is getting too confusing.
I guess if I ever become self-employed, which is my goal, I can revisit Traditional IRA.
Why would you want to pay capital gains taxes if you don't have to?