Support NeoGAF

[RumblingRosco]

-

 

[UraMallas]

A few posts up people discuss investment books. I like "The Only Investment Guide You'll Ever Need" but for someone that is 59.5 years old there may be a better, more focused book than that.

Oh shit. I completely skipped those two posts. The post above that is what made me ask the question. However, you're right. I am looking for a more focused book for her. Anybody with some other suggestions?

 

[Darren870]

What is the best retirement book? My mom is going to retire in about 5 years and she turns 59 and a half in May so I was going to get us both an investment book so we could read it and go over things. I'm quite a bit more knowledgeable than her on the subject so maybe something simple or entry level so we can both read it.

Um. Is she looking to start saving for retirement now? Or just general knowledge? The three I mentioned are all good. Though, your money or your life isn't going to be relevant to her as it would be you.

 

[UraMallas]

Um. Is she looking to start saving for retirement now? Or just general knowledge? The three I mentioned are all good. Though, your money or your life isn't going to be relevant to her as it would be you.

She has about $400K for retirement and it's just her. She will be working for another 5 years, I think.

 

[Wellington]

She has about $400K for retirement and it's just her. She will be working for another 5 years, I think.

Need more info. Does she have a 401k via her work or is she using another retirement vehicle? How much does she spend annually? Does she own her house free and clear?

Since she is past the age of 50, she can contribute more to her retirement accounts. If she lives a modest lifestyle $400k could easily be enough if invested properly.

That was great. Weird how his tone is so different in his blog.

Yeah, I wasn't really a fan of his until I heard that show. He actually seems like a regular dude and not a huge jackass.

 

[ClosingADoor]

Just opened my account last week and made my first deposit. Thanks for the advice in this topic. Fun to see a first 23 euro profit. Now to put it out of my head for the time and just make my deposits every few months.

Started with a neutral fund (50/50 bonds and stock). Whats the opinion for the longer term here (think at least 20 years) to do? I was thinking keeping 75% in a neutral one and 25% in a more aggressive one with more stocks.

 

[Darren870]

Just opened my account last week and made my first deposit. Thanks for the advice in this topic. Fun to see a first 23 euro profit. Now to put it out of my head for the time and just make my deposits every few months.

Started with a neutral fund (50/50 bonds and stock). Whats the opinion for the longer term here (think at least 20 years) to do? I was thinking keeping 75% in a neutral one and 25% in a more aggressive one with more stocks.

How old are you? That's really heavy in bonds. You probably shouldn't be that heavy till your 50s.

Usually every 10 years you adjust by 10%. It used to be 100 - you age to find the ratio. So at 30 it would be 70% stocks 30% bonds. However, many argue that's too high and think it should be 110 to 120. Especially with low interest rates.

Not sure what the interest rates are like where you live though.

 

[ClosingADoor]

How old are you? That's really heavy in bonds. You probably shouldn't be that heavy till your 50s.

Usually every 10 years you adjust by 10%. It used to be 100 - you age to find the ratio. So at 30 it would be 70% stocks 30% bonds. However, many argue that's too high and think it should be 110 to 120. Especially with low interest rates.

Not sure what the interest rates are like where you live though.

Thanks, I'll do some more reading and see what feels best for me. In my 20s still, so got some time to go of course. Might have put too much weight in the dozens of warning texts they make you read before any investment here...

The other two funds would have either 70/30 or 90/10 split. Then I might be better off going for that 90/10 for a few years now I think.

 

[The Horror the horror]

I need help.

My employer (a non-profit, government funded organization) has prohibited me from making an early withdrawal from my company's Roth IRA. They told me that unless I was facing hardship conditions, terminated, or reached retirement age, I couldn't touch or roll-over my post-tax contributions. I am well aware of the penalty; I'll pay the stinking penalty. I just want my principle.

1.) Is what they're doing legal?
2.) Is this standard/common practice?

Thank you.

 

[PflargBlarg]

How old are you? That's really heavy in bonds. You probably shouldn't be that heavy till your 50s.

Usually every 10 years you adjust by 10%. It used to be 100 - you age to find the ratio. So at 30 it would be 70% stocks 30% bonds. However, many argue that's too high and think it should be 110 to 120. Especially with low interest rates.

Not sure what the interest rates are like where you live though.

I agree that that distribution is too heavy on bonds. I have 0% bonds right now and won't buy any until I'm 30.

 

[out0v0rder]

I need help.

My employer (a non-profit, government funded organization) has prohibited me from making an early withdrawal from my company's Roth IRA. They told me that unless I was facing hardship conditions, terminated, or reached retirement age, I couldn't touch or roll-over my post-tax contributions. I am well aware of the penalty; I'll pay the stinking penalty. I just want my principle.

1.) Is what they're doing legal?
2.) Is this standard/common practice?

Thank you.

there shouldnt be any penalty or problem for withdrawing the money you put in at least. taking that out shouldnt be a problem. thats just what i heard though.

 

[Cyan]

I need help.

My employer (a non-profit, government funded organization) has prohibited me from making an early withdrawal from my company's Roth IRA. They told me that unless I was facing hardship conditions, terminated, or reached retirement age, I couldn't touch or roll-over my post-tax contributions. I am well aware of the penalty; I'll pay the stinking penalty. I just want my principle.

1.) Is what they're doing legal?
2.) Is this standard/common practice?

Thank you.

Roth IRA or Roth 401k? I can't see how they could possibly prevent you if it's an IRA.

 

[Randolph Freelander]

I need help.

My employer (a non-profit, government funded organization) has prohibited me from making an early withdrawal from my company's Roth IRA. They told me that unless I was facing hardship conditions, terminated, or reached retirement age, I couldn't touch or roll-over my post-tax contributions. I am well aware of the penalty; I'll pay the stinking penalty. I just want my principle.

1.) Is what they're doing legal?
2.) Is this standard/common practice?

Thank you.

Just a clarification, if it's part of your employer plan, it's a 401K, not an IRA, and yes, that is standard for 401K plans. Your plan might allow for you to take a loan from your own account, though I do not believe an employer is required to allow even that.

 

[The Horror the horror]

Sorry about the confusion. It's a 403(b).

So my money is stuck unless I leave the company or prove that I really need it?

 

[Randolph Freelander]

Sorry about the confusion. It's a 403(b).

So my money is stuck unless I leave the company or prove that I really need it?

Pretty much, absent a loan, or absent you leaving the company and taking a disbursement. Do you really need it?

 

[The Horror the horror]

Pretty much, absent a loan, or absent you leaving the company and taking a disbursement. Do you really need it?

No, I simply want to invest that money elsewhere.

 

[Mr.Mike]

So the TFSA contribution limit is being raised to $10,000 , effective this year. (Yes, this year, as in 2015). So everyone gets an extra $4500 of contribution room this year. (Yes, this year, as in 2015) Also, apparently the CRA consider the pronouncement of the budget to be law, so you can use your extra contribution room now, before the budget is even passed. ( Might wanna double check that).

The catch seems to be that the TFSA contribution limit is no longer indexed to inflation.

 

[Randolph Freelander]

No, I simply want to invest that money elsewhere.

Your only recourse* is to quit your job and then roll over the funds into a personal IRA. The deck is stacked in the US in favor of employer plans. It's probably a good thing overall, but the obvious drawback of limited investment choices is of course unfortunate.


----
*Someone more knowledgeable than me might state otherwise.

 

[The Horror the horror]

Here are the hardship conditions:

•  Primary Residence. Cost directly related to the purchase of my principal residence, which do not include mortgage payments.
•  Educational Expenses. Cost directly related to payment of tuition for post secondary education.
•  Medical and/or Hospital Expenses. Cost directly related to or necessary for medical care, that is deductible under section 213(d) of the Internal Revenue Code.
•  Payments necessary to prevent Eviction from and/or Foreclosure on principal residence.
•  Funeral Expenses. Cost directly related to burial or funeral expenses
•  Repairs on Primary Residence. Cost directly related to repair of

Which of these would be the easiest to use/fabricate?

 

[Cyan]

No, I simply want to invest that money elsewhere.

Are the investment options really that bad that the penalty is worth taking? And losing the tax-protected status?

I can't imagine this could possibly be the case.

 

[AppleBlade]

What do you guys think of this investment plan/glide path? (I'm currently 32)



Ages 30-39 (80 stocks/ 20 Bonds)
32 - Total US Stock Market
16 - Global REIT Index
16 - Developed International Index
16 - Emerging Markets Index
10 - Total Bond Index
10 - TIPS Index

Age 40-49 (70 Stocks / 30 Bonds)
28 - Total US Stock Market
14 - Global REIT Index
14 - Developed International Index
14 - Emerging Markets Index
15 - Total Bond Index
15 - TIPS Index

Age 50-54 (50 Stocks / 50 Bonds)
20 - Total US Stock Market
10 - Global REIT Index
10 - Developed International Index
10 - Emerging Markets Index
25 - Total Bond Index
25 - TIPS Index

55-59 (40 Stocks / 60 Bonds)
16 - Total US Stock Market
8 - Global REIT Index
8 - Developed International Index
8 - Emerging Markets Index
30 - Total Bond Index
30 - TIPS Index


60+ (30 Stocks / 70 Bonds) Hoping to retire at 60 and keep this allocation
12 - Total US Stock Market
6 - Global REIT Index
6 - Developed International Index
6 - Emerging Markets Index
35 - Total Bond Index
35 - TIPS Index

 

[teiresias]

Retirement calculators are amazing.

So i'm running my numbers on the TSP calculator to look at my projected balance given my existing balance and future contributions. I'm assuming a static salary at what I'm paid today (this won't happen, it should go up, though I'm already maxing my contribution so that wouldn't really matter unless the limit rises too) and assuming a 7% return.

If I wait to retire at 66 rather than 62 (only 4 years) that apparently equals nearly another $1 million in my balance. Lord, does compounding really get that crazy by that point? I mean, I'm sure it does, it's just crazy to see it in a graph, lol!

 

[The Horror the horror]

Are the investment options really that bad that the penalty is worth taking? And losing the tax-protected status?

I can't imagine this could possibly be the case.

Yes. I need the money to invest in a new venture. If I have to quit this job to get it, I'll do it. I have only 1 shot at this, and I'm going to take it.

 

[RumblingRosco]

-

 

[Cyan]

I obviously have no idea what your financial situation (retirement or otherwise) looks like and I also have no idea what your new venture is, but man, this post scares me. It gives me a bad feeling in the sense that you're dumping a ton of money into a "new venture" that could very well go belly-up.

I'm not trying to be condescending and you should do what you feel is best, but I guess I'm just expressing my concern.

Ditto. With no concrete details I obviously don't know for sure, but as a general rule when someone says something like that I assume they are about to blow their life savings on something that will not work out. :/

Best of luck.

 

[Darren870]

Yes. I need the money to invest in a new venture. If I have to quit this job to get it, I'll do it. I have only 1 shot at this, and I'm going to take it.

I agree with Cyan and Soka. You know you are going to lose about 30-40% if you withdraw, right? The penalties and tax are extremely harsh.

I hope this isn't some bit coin or mlm venture....

 

[teiresias]

If the new venture is a business shouldn't you really be going to a bank to get a loan under the umbrella of some kind of LLC to protect personal assets?

If it's some wobbly investment scheme you can only use personal funds for, then god speed.

 

[GhaleonEB]

If the new venture is a business shouldn't you really be going to a bank to get a loan under the umbrella of some kind of LLC to protect personal assets?

If it's some wobbly investment scheme you can only use personal funds for, then god speed.

I was about to make a similar comment. The cost of withdrawing money early, with taxes and penalties, is significant. The cost of a loan (especially now) is relatively low. Particularly for some kind of business venture, the latter is far wiser than decimating a retirement nest egg.

 

[Piecake]

What do you guys think of this investment plan/glide path? (I'm currently 32)



Ages 30-39 (80 stocks/ 20 Bonds)
32 - Total US Stock Market
16 - Global REIT Index
16 - Developed International Index
16 - Emerging Markets Index
10 - Total Bond Index
10 - TIPS Index

Age 40-49 (70 Stocks / 30 Bonds)
28 - Total US Stock Market
14 - Global REIT Index
14 - Developed International Index
14 - Emerging Markets Index
15 - Total Bond Index
15 - TIPS Index

Age 50-54 (50 Stocks / 50 Bonds)
20 - Total US Stock Market
10 - Global REIT Index
10 - Developed International Index
10 - Emerging Markets Index
25 - Total Bond Index
25 - TIPS Index

55-59 (40 Stocks / 60 Bonds)
16 - Total US Stock Market
8 - Global REIT Index
8 - Developed International Index
8 - Emerging Markets Index
30 - Total Bond Index
30 - TIPS Index


60+ (30 Stocks / 70 Bonds) Hoping to retire at 60 and keep this allocation
12 - Total US Stock Market
6 - Global REIT Index
6 - Developed International Index
6 - Emerging Markets Index
35 - Total Bond Index
35 - TIPS Index

Looks fine. The most important thing is that you are comfortable with it. How come you are investing in TIPS so early though? What is your reasoning behind it?

I also plan on investing in TIPS eventually, but I only plan on doing that when I start dropping stocks to keep my inflation hedge. Stocks are a very good inflation hedge, so it seemed prudent to replace that with bonds (TIPS) that also hedge against inflation.

 

[AppleBlade]

Looks fine. The most important thing is that you are comfortable with it. How come you are investing in TIPS so early though? What is your reasoning behind it?

I also plan on investing in TIPS eventually, but I only plan on doing that when I start dropping stocks to keep my inflation hedge. Stocks are a very good inflation hedge, so it seemed prudent to replace that with bonds (TIPS) that also hedge against inflation.

I get more diversification with almost no difference in return. I used portfoliovisualizer.com and ran some backtest comparisons (Using the last 44 years of data) and found some very interesting results.

Looking at an initial investment of $10,000 you'll see that a 100% total bond market will outperforms a 100% TIPs portfolio by a noticeable amount. However when comparing a 100% Bond portfolio to a 50/50 bonds/tips portfolio the difference becomes very small.

The interesting thing is when you run the backtest with annual contributions and annual rebalancing the Bond portfolio performance is virtually the same as the 50/50 portfolio and the 50/50 actually has a higher Sharpe and Sortino ratio.

I feel more comfortable, am slightly more diversified and historically it does not cost me much in performance. (See below where portfolio 1 is the 50/50 and portfolio 2 is 100% bonds)

 

[RuGalz]

For retirement, the GOAT podcast episode is the Listen Money Matters episode with Mr. Money Mustache that I linked to earlier in the thread. I have probably listened to it like 10 times. http://www.listenmoneymatters.com/early-retirement-with-mr-money-mustache/[/url]

I didn't realize his yearly budget is 25k... Even without mortgage, my wife and my spending together is at least double that. We don't eat out much, usually only spend on what's necessary, I still drive a car I bought 15 years ago... I suppose wherever he lives is cheaper but I don't think food and regular daily expenses makes up that much difference. Or maybe it does and I'm not calculating it correctly?

 

[anonymous_abc]

I didn't realize his yearly budget is 25k... Even without mortgage, my wife and my spending together is at least double that. We don't eat out much, usually only spend on what's necessary, I still drive a car I bought 15 years ago... I suppose wherever he lives is cheaper but I don't think food and regular daily expenses makes up that much difference. Or maybe it does and I'm not calculating it correctly?

Here's his budget.
http://www.mrmoneymustache.com/2014/01/12/exposed-the-mmm-familys-2013-spending/

 

[GhaleonEB]

Here's his budget.
http://www.mrmoneymustache.com/2014/01/12/exposed-the-mmm-familys-2013-spending/

This is pretty inspiring and does have me thinking about how tightly to try and pull in some of our spending. And the use of cash back cards - which I only started using last year - is a good bit of advice. We're very frugal in many of the same ways, but allow a bit of fun spending here and there. Each year we do a family vacation or two (if small), and usually one major home improvement project, which would put us well over that limit. This year we're looking at ~$4500 for a new deck on the back of the house, last year it was a similar cost for the shed I built; the cost is just materials as my labor is free. If we cut out just the major home projects and vacations, and the mortgage, we're probably close to $30k for annual spending. Another reason I'm trying to pay the mortgage off early.

I'll listen to the podcast later today.

 

[RuGalz]

Here's his budget.
http://www.mrmoneymustache.com/2014/01/12/exposed-the-mmm-familys-2013-spending/

Thanks. Interesting... I guess we aren't too far off in controllable categories. I'm not sure if I'll ever feel comfortable to just pack up unless I have a lot of buffer though.

edit: in the podcast, he said he had 800k saved up for retirement. I wonder if that is counting any sort of 401k he might have contributed or if it's all in taxable account.

 

[PflargBlarg]

So the TFSA contribution limit is being raised to $10,000 , effective this year. (Yes, this year, as in 2015). So everyone gets an extra $4500 of contribution room this year. (Yes, this year, as in 2015) Also, apparently the CRA consider the pronouncement of the budget to be law, so you can use your extra contribution room now, before the budget is even passed. ( Might wanna double check that).

The catch seems to be that the TFSA contribution limit is no longer indexed to inflation.

I've read this news and it all seems a bit silly. I'd say I know maybe 1 or 2 people who are even able to max out the current contribution limit, this isn't going to benefit anyone but the upper class while costing Canada a ridiculous amount of money.

In regards to that MMM budget, I think we're fairly close in terms of controllable spending. It's the housing costs that separate us from MMM. He spends pretty much nothing on shelter while we're spending more than his entire budget on annual rent. It's really the big differentiator. I simply would not be able to do his kind of budget unless I moved hours away from Vancouver.

 

[BlitzEngineer]

Just want to say I really appreciate this thread. As someone just out of school, having spent the last couple slow work days reading through this thread, I'm kind of surprised how simple it sounds to start saving. Kinda bonkers to me that this type of information isn't really communicated to my generation it feels like; nobody I know is saving practically any money. Really I'd be surprised if anyone my age that I work with even knows what a 401k or IRA even is. Kinda makes me feel like this stuff should be in high school curriculum or something but I digress.

This thread in combination with a conversation with my father recently has motivated me to look into opening up a Roth IRA for myself. Basically we were talking about my intent for the future and came to the conclusion that I may not work for a company that offers any kind of 401k anytime soon (I'm looking to start an independent venture while working full time at my current hourly seasonal position). Given this fact he encouraged me to start as early as possible given that I won't have the advantage of an employer-matched 401k for the forseeable future.

The upshot is that I'd like to start saving, but I don't have a tremendous amount of cash. My expenses are very low (Car's paid off, no student loans or debt of any kind, rent is cheap because I live in employee housing where I work), so I know I can spare a portion of my income without worry. I was looking to start with about $1,500 and then put in around $100 every month until it makes sense to start saving more.

I think from my own research and this thread I'll be looking to open a Roth IRA at either Fidelity or Vanguard. The funds Piecake suggested at the start of the thread look attractive to me, and since I'm young I think I'll avoid bonds and focus on growth for now. So I'm looking at VTSMX on the Vanguard side and FSTMX on Fidelity. Other than the difference in provider and expense ratio I'm not seeing much of a difference between these two funds. Am I correct in assuming that in this case the Fidelity offering would be better for it's lower expense ratio?

Another thing is that these funds have minimums to start out, $3,000 and $2,500 respectively. From the OP I understand I can get around this minimum by buying the similar ETFs, and after doing some research I think I'd be comfortable doing that, but is there any disadvantage I'm not seeing when comparing ETFs to Mutual Funds? I'm looking at VTI for an ETF similar to Vanguard's Total stock market fund, and ITOT on the Fidelity side. Assuming I'm looking at the right ETFs it seems Vanguard may have the slight edge here? Again assuming expense ratio is all that differentiates them.

So should I go with my original plan and buy ETFs with the initial 1,500 or wait until I can buy into a mutual fund after a few months? Also, at the low amounts of money I'm talking about, how important is diversity? If I do buy the ETFs should I try to split it between different funds or just stick with the Total Market stuff for now until I have a larger portfolio?

 

[GhaleonEB]

I think from my own research and this thread I'll be looking to open a Roth IRA at either Fidelity or Vanguard. The funds Piecake suggested at the start of the thread look attractive to me, and since I'm young I think I'll avoid bonds and focus on growth for now. So I'm looking at VTSMX on the Vanguard side and FSTMX on Fidelity. Other than the difference in provider and expense ratio I'm not seeing much of a difference between these two funds. Am I correct in assuming that in this case the Fidelity offering would be better for it's lower expense ratio?

Another thing is that these funds have minimums to start out, $3,000 and $2,500 respectively. From the OP I understand I can get around this minimum by buying the similar ETFs, and after doing some research I think I'd be comfortable doing that, but is there any disadvantage I'm not seeing when comparing ETFs to Mutual Funds? I'm looking at VTI for an ETF similar to Vanguard's Total stock market fund, and ITOT on the Fidelity side. Assuming I'm looking at the right ETFs it seems Vanguard may have the slight edge here? Again assuming expense ratio is all that differentiates them.

So should I go with my original plan and buy ETFs with the initial 1,500 or wait until I can buy into a mutual fund after a few months? Also, at the low amounts of money I'm talking about, how important is diversity? If I do buy the ETFs should I try to split it between different funds or just stick with the Total Market stuff for now until I have a larger portfolio?

Those funds are functionally the same; the returns are nearly identical, with the Fidelity a touch higher, likely due to the lower expense ratio.

I don't know about Vanguard, but with Fidelity you can get around the minimums if you set up an automatic monthly contribution sufficient to get your contributions over the minimum within 12 months. At the time I moved to them a few years ago, the you could get into the fund with ~$200 (IIRC) and keep contributing $200 per month automatically. Once over the fund minimum you could cut back without penalty. If you wanted to not deal with a mix of ETFs and mutual funds, that would be one options.

 

[GhaleonEB]

For retirement, the GOAT podcast episode is the Listen Money Matters episode with Mr. Money Mustache that I linked to earlier in the thread. I have probably listened to it like 10 times. http://www.listenmoneymatters.com/early-retirement-with-mr-money-mustache/

This was a pretty great listen, and I found it surprisingly inspirational. MMM comes across entirely different in person than he does on his site.

It prompted me to run some quick numbers to see how we are tracking as compared to MMM's key principles: live off half your take home, and save 25x your spending. (Or put differently, enough that your spending is 4% of your savings.) I'll do more analysis tonight when I have our spreadsheet in front of me.

The primary question I came away with is around the role of tax advantaged retirement accounts in an early retirement strategy. If I stretch a bit and follow the 25x target, I'd be able to retire well before 59 1/2, when I'm eligible for Roth IRA withdrawals. So in order to actually retire early, I'd need to save up a significant amount outside of IRA and 401k accounts, to serve as a bridge until I'm old enough to access those accounts without penalty.

But that means building up that savings at some point. I could start contributing now, at the expense of either early mortgage principal payments or 401k/IRA savings. Or I could pay off the house in ~10 years and then funnel what we used to pay on the mortgage into a regular, non-retirement account (index funds, naturally), and work long enough to build up the "bridge".

I'm deeply apprehensive about pulling back on retirement savings. But, if I stretch, I would be at or near the 25x goal he described not long after I pay off the mortgage (which is almost the same year our youngest daughter would finish up high school and presumably move out, thus reducing our living expenses further). So following the strategy of saving for retirement using primarily retirement accounts would actually require me to work longer than if I built the bridge in advance.

Dammit. And here I was feeling like I had settled all the major long term savings strategy questions I had. Any thoughts on this subject?

 

[TangoAlphaLima]

The primary question I came away with is around the role of tax advantaged retirement accounts in an early retirement strategy. If I stretch a bit and follow the 25x target, I'd be able to retire well before 59 1/2, when I'm eligible for Roth IRA withdrawals. So in order to actually retire early, I'd need to save up a significant amount outside of IRA and 401k accounts, to serve as a bridge until I'm old enough to access those accounts without penalty.

But that means building up that savings at some point. I could start contributing now, at the expense of either early mortgage principal payments or 401k/IRA savings. Or I could pay off the house in ~10 years and then funnel what we used to pay on the mortgage into a regular, non-retirement account (index funds, naturally), and work long enough to build up the "bridge".

I'm deeply apprehensive about pulling back on retirement savings. But, if I stretch, I would be at or near the 25x goal he described not long after I pay off the mortgage (which is almost the same year our youngest daughter would finish up high school and presumably move out, thus reducing our living expenses further). So following the strategy of saving for retirement using primarily retirement accounts would actually require me to work longer than if I built the bridge in advance.

Dammit. And here I was feeling like I had settled all the major long term savings strategy questions I had. Any thoughts on this subject?

Don't build the non-retirement savings now, save that for last. It gives you no tax benefit, so you're better off fully funding your 401(k)/Traditional IRA/Roth IRA now. If you end up needing to bridge the gap to 59 and a half, you'll figure that out in the last handful of years leading up to the start of the bridge, at which point you can just focus on non-retirement savings. Any capital gains you have from those investments will be minimal because they won't have long to grow.

 

[Servbot24]

It prompted me to run some quick numbers to see how we are tracking as compared to MMM's key principles: live off half your take home, and save 25x your spending. (Or put differently, enough that your spending is 4% of your savings.) I'll do more analysis tonight when I have our spreadsheet in front of me.

Right now I use one check a month for bills and the other check goes to spending/saving, so I'm good on that front.

That 4% though is tough. My current spending is closer to 10%. I don't spend needlessly, but for example if I buy 2 plane tickets to visit family a year totaling $600, that already puts me at 4% ($1300*.04*12mo = $624). If I need to do repairs or anything like that I'm going over 4%. And I haven't indulged in any enjoyment yet on this budget (which for me is just the occasional used game or book). Seems impossible.

 

[Piecake]

Just want to say I really appreciate this thread. As someone just out of school, having spent the last couple slow work days reading through this thread, I'm kind of surprised how simple it sounds to start saving. Kinda bonkers to me that this type of information isn't really communicated to my generation it feels like; nobody I know is saving practically any money. Really I'd be surprised if anyone my age that I work with even knows what a 401k or IRA even is. Kinda makes me feel like this stuff should be in high school curriculum or something but I digress.

This thread in combination with a conversation with my father recently has motivated me to look into opening up a Roth IRA for myself. Basically we were talking about my intent for the future and came to the conclusion that I may not work for a company that offers any kind of 401k anytime soon (I'm looking to start an independent venture while working full time at my current hourly seasonal position). Given this fact he encouraged me to start as early as possible given that I won't have the advantage of an employer-matched 401k for the forseeable future.

The upshot is that I'd like to start saving, but I don't have a tremendous amount of cash. My expenses are very low (Car's paid off, no student loans or debt of any kind, rent is cheap because I live in employee housing where I work), so I know I can spare a portion of my income without worry. I was looking to start with about $1,500 and then put in around $100 every month until it makes sense to start saving more.

I think from my own research and this thread I'll be looking to open a Roth IRA at either Fidelity or Vanguard. The funds Piecake suggested at the start of the thread look attractive to me, and since I'm young I think I'll avoid bonds and focus on growth for now. So I'm looking at VTSMX on the Vanguard side and FSTMX on Fidelity. Other than the difference in provider and expense ratio I'm not seeing much of a difference between these two funds. Am I correct in assuming that in this case the Fidelity offering would be better for it's lower expense ratio?

Another thing is that these funds have minimums to start out, $3,000 and $2,500 respectively. From the OP I understand I can get around this minimum by buying the similar ETFs, and after doing some research I think I'd be comfortable doing that, but is there any disadvantage I'm not seeing when comparing ETFs to Mutual Funds? I'm looking at VTI for an ETF similar to Vanguard's Total stock market fund, and ITOT on the Fidelity side. Assuming I'm looking at the right ETFs it seems Vanguard may have the slight edge here? Again assuming expense ratio is all that differentiates them.

So should I go with my original plan and buy ETFs with the initial 1,500 or wait until I can buy into a mutual fund after a few months? Also, at the low amounts of money I'm talking about, how important is diversity? If I do buy the ETFs should I try to split it between different funds or just stick with the Total Market stuff for now until I have a larger portfolio?

I would plan for the long run and compare Vanguard's Admiral shares. Those have a very low expense ratio with Total US stock being .05%. I don't know if Fidelity has something similar, but it is worth checking into.

I really don't think it really makes much difference which company you go with since the difference between a few .01% is pretty minor. I personally went with Vanguard since I like their business model more and wanted to support it. Instead of a rich dude on wall st, Vanguard is owned by the funds themselves, and, as a result is owned by the investors in the funds.

Glad you found the thread useful. It is always nice hearing from people about how this thread started getting them to think about the future, retirement, and investing.

 

[RuGalz]

Dammit. And here I was feeling like I had settled all the major long term savings strategy questions I had. Any thoughts on this subject?

I went through the similar thoughts about contributing less to retirement account in order to build up that bridge. But no matter how I look at it, I'm uncomfortable with it because of any unexpected surprises. I want to retire early but it seems like the only way to do it is to build up enough passive income so that my saving account plus the passive income can sustain me without touching my retirement contribution.

 

[GhaleonEB]

Don't build the non-retirement savings now, save that for last. It gives you no tax benefit, so you're better off fully funding your 401(k)/Traditional IRA/Roth IRA now. If you end up needing to bridge the gap to 59 and a half, you'll figure that out in the last handful of years leading up to the start of the bridge, at which point you can just focus on non-retirement savings. Any capital gains you have from those investments will be minimal because they won't have long to grow.

This makes a lot of sense to me. By waiting until then I'd also have better line of sight to my retirement date, and could adjust and plan accordingly. Right now it's a long ways out and with so many variables (kids, mortgage, etc.) projecting involves a lot of assumptions. And the capital gains implications are something I somehow forgot all about - that's one of the primary benefits of the retirement accounts in the first place.

I went through the similar thoughts about contributing less to retirement account in order to build up that bridge. But no matter how I look at it, I'm uncomfortable with it because of any unexpected surprises. I want to retire early but it seems like the only way to do it is to build up enough passive income so that my saving account plus the passive income can sustain me without touching my retirement contribution.

I think that's the idea, yeah. To do it right I think we'd need a comfortable cushion to ensure a major dip in the markets during that bridge period didn't tank the strategy. And that means saving up a decent amount extra, or moving it to more conservative funds, both of which are not optimal. It probably makes the most sense to keep our current savings funds flat and pump retirement until I have better line of sight to my retirement date.

I would plan for the long run and compare Vanguard's Admiral shares. Those have a very low expense ratio with Total US stock being .05%. I don't know if Fidelity has something similar, but it is worth checking into.

I really don't think it really makes much difference which company you go with since the difference between a few .01% is pretty minor. I personally went with Vanguard since I like their business model more and wanted to support it. Instead of a rich dude on wall st, Vanguard is owned by the funds themselves, and, as a result is owned by the investors in the funds.

Glad you found the thread useful. It is always nice hearing from people about how this thread started getting them to think about the future, retirement, and investing.

The Fidelity equivalent is their Advantage class shares, the total market index for which is here (also with a .05% expense ratio).

 

[Javaman]

Retirement calculators are amazing.

So i'm running my numbers on the TSP calculator to look at my projected balance given my existing balance and future contributions. I'm assuming a static salary at what I'm paid today (this won't happen, it should go up, though I'm already maxing my contribution so that wouldn't really matter unless the limit rises too) and assuming a 7% return.

If I wait to retire at 66 rather than 62 (only 4 years) that apparently equals nearly another $1 million in my balance. Lord, does compounding really get that crazy by that point? I mean, I'm sure it does, it's just crazy to see it in a graph, lol!

Yep, that's why it's so important to start saving while young. If your amount doubles every 8 years, starting just 8 years early will give you double what you would save from a lifetime of saving.

 

[out0v0rder]

Just want to say I really appreciate this thread. As someone just out of school, having spent the last couple slow work days reading through this thread, I'm kind of surprised how simple it sounds to start saving. Kinda bonkers to me that this type of information isn't really communicated to my generation it feels like; nobody I know is saving practically any money. Really I'd be surprised if anyone my age that I work with even knows what a 401k or IRA even is. Kinda makes me feel like this stuff should be in high school curriculum or something but I digress.

This thread in combination with a conversation with my father recently has motivated me to look into opening up a Roth IRA for myself. Basically we were talking about my intent for the future and came to the conclusion that I may not work for a company that offers any kind of 401k anytime soon (I'm looking to start an independent venture while working full time at my current hourly seasonal position). Given this fact he encouraged me to start as early as possible given that I won't have the advantage of an employer-matched 401k for the forseeable future.

The upshot is that I'd like to start saving, but I don't have a tremendous amount of cash. My expenses are very low (Car's paid off, no student loans or debt of any kind, rent is cheap because I live in employee housing where I work), so I know I can spare a portion of my income without worry. I was looking to start with about $1,500 and then put in around $100 every month until it makes sense to start saving more.

I think from my own research and this thread I'll be looking to open a Roth IRA at either Fidelity or Vanguard. The funds Piecake suggested at the start of the thread look attractive to me, and since I'm young I think I'll avoid bonds and focus on growth for now. So I'm looking at VTSMX on the Vanguard side and FSTMX on Fidelity. Other than the difference in provider and expense ratio I'm not seeing much of a difference between these two funds. Am I correct in assuming that in this case the Fidelity offering would be better for it's lower expense ratio?

Another thing is that these funds have minimums to start out, $3,000 and $2,500 respectively. From the OP I understand I can get around this minimum by buying the similar ETFs, and after doing some research I think I'd be comfortable doing that, but is there any disadvantage I'm not seeing when comparing ETFs to Mutual Funds? I'm looking at VTI for an ETF similar to Vanguard's Total stock market fund, and ITOT on the Fidelity side. Assuming I'm looking at the right ETFs it seems Vanguard may have the slight edge here? Again assuming expense ratio is all that differentiates them.

So should I go with my original plan and buy ETFs with the initial 1,500 or wait until I can buy into a mutual fund after a few months? Also, at the low amounts of money I'm talking about, how important is diversity? If I do buy the ETFs should I try to split it between different funds or just stick with the Total Market stuff for now until I have a larger portfolio?

Congratulations on saving for your future. I use Vanguard but I am sure Fidelity is perfectly fine too. I like going the ETF route because you get a more "real time" picture of your investments, the price updates throughout the day. Mutual funds only update their price once at the end of the trading day. Of course none of this should really matter because you shouldn't be stressing out by watching your investments prices throughout the day. In it for the long term and all that. I guess I just like the ETF's ya know?

I am not an expert, but to start with putting your $1.5K into some sort of Total Market vehicle is not the worst idea at all. Once your account starts getting a little more plump with funds then you can take a step back and reassess how everything should be diversified. Right now just focus on getting the money into something. Happy saving!

 

[Piecake]

This was a pretty great listen, and I found it surprisingly inspirational. MMM comes across entirely different in person than he does on his site.

It prompted me to run some quick numbers to see how we are tracking as compared to MMM's key principles: live off half your take home, and save 25x your spending. (Or put differently, enough that your spending is 4% of your savings.) I'll do more analysis tonight when I have our spreadsheet in front of me.

The primary question I came away with is around the role of tax advantaged retirement accounts in an early retirement strategy. If I stretch a bit and follow the 25x target, I'd be able to retire well before 59 1/2, when I'm eligible for Roth IRA withdrawals. So in order to actually retire early, I'd need to save up a significant amount outside of IRA and 401k accounts, to serve as a bridge until I'm old enough to access those accounts without penalty.

But that means building up that savings at some point. I could start contributing now, at the expense of either early mortgage principal payments or 401k/IRA savings. Or I could pay off the house in ~10 years and then funnel what we used to pay on the mortgage into a regular, non-retirement account (index funds, naturally), and work long enough to build up the "bridge".

I'm deeply apprehensive about pulling back on retirement savings. But, if I stretch, I would be at or near the 25x goal he described not long after I pay off the mortgage (which is almost the same year our youngest daughter would finish up high school and presumably move out, thus reducing our living expenses further). So following the strategy of saving for retirement using primarily retirement accounts would actually require me to work longer than if I built the bridge in advance.

Dammit. And here I was feeling like I had settled all the major long term savings strategy questions I had. Any thoughts on this subject?

I really don't have enough confidence in the 4% withdrawal maxim to do extremely early retirement unless I have a significant cushion, and I simply do not make enough money to make that happen.

Figuring out how to convert a nest egg into enough income to fund a comfortable retirement without completely draining savings is perhaps the biggest issue facing retirees and financial advisors. Wade Pfau, a soft-spoken, Princeton University-trained economist, has taken on the task of trying to solve the puzzle.

Pfau, 37, spent the first decade of his career teaching economics to bureaucrats from emerging markets at the National Graduate Institute of Policy Studies in Tokyo. But he has long had an interest in retirement, going back to his doctoral thesis, which focused on President George W. Bush’s Social Security reform proposal. Pfau came into the limelight in 2010 with a paper that poked holes in the 4% rule long used in financial planning to help retirees spend a nest egg judiciously. After data showed that the rule, which posits the withdrawal of 4% of a portfolio in the first year of retirement, with annual adjustments for inflation thereafter, had worked in only two of 20 developed countries -- the U.S. and Canada -- Pfau dug deeper. He found that the rule wouldn’t work in a number of circumstances, including retiring during a market downturn and in a period of historically low interest rates.

http://online.barrons.com/articles/retirement-rules-time-to-rethink-a-4-withdrawal-rate-1428722900

 

[RuGalz]

Yep, that's why it's so important to start saving while young. If your amount doubles every 8 years, starting just 8 years early will give you double what you would save from a lifetime of saving.

Otoh, it also makes me think, why even try to retire early? Maybe just live like a King afterward instead... lol

 

[TangoAlphaLima]

This makes a lot of sense to me. By waiting until then I'd also have better line of sight to my retirement date, and could adjust and plan accordingly. Right now it's a long ways out and with so many variables (kids, mortgage, etc.) projecting involves a lot of assumptions. And the capital gains implications are something I somehow forgot all about - that's one of the primary benefits of the retirement accounts in the first place.

Thinking about it more, your Roth IRA could potentially be used as a bridge to some extent, since you can pull out the principal at any time prior to 59 and a half. Obviously you wouldn't want to pull out a lot, since you it to continue to grow, but it could at least be used as a bit of a safety net.

 

[GhaleonEB]

I really don't have enough confidence in the 4% withdrawal maxim to do extremely early retirement unless I have a significant cushion, and I simply do not make enough money to make that happen.

http://online.barrons.com/articles/retirement-rules-time-to-rethink-a-4-withdrawal-rate-1428722900

Login required, unfortunately, but I will look into it. There are other factors in the mix, including supplemental income (MMM's position is, retirement does not mean the end of work, but rather the end of mandatory work), but thanks for the excerpt.

Personally I think it would work so long as you had removed large expenses such as a mortgage, have a good history of living within the spending level the 4% corresponds to, and have a cash reserve to tap into if the market goes through a major contraction (which is part of my strategy). But that's a lot of caveats and I don't know if his analysis covers it. I would do a thorough analysis of the strategy across market performance assumptions before retiring; you don't want a market crash to also kill retirement plans.

 

[Piecake]

Login required, unfortunately, but I will look into it. There are other factors in the mix, including supplemental income (MMM's position is, retirement does not mean the end of work, but rather the end of mandatory work), but thanks for the excerpt.

Personally I think it would work so long as you had removed large expenses such as a mortgage, have a good history of living within the spending level the 4% corresponds to, and have a cash reserve to tap into if the market goes through a major contraction (which is part of my strategy). But that's a lot of caveats and I don't know if his analysis covers it. I would do a thorough analysis of the strategy across market performance assumptions before retiring; you don't want a market crash to also kill retirement plans.

huh, maybe you can get around it by googling it. I was able to read it that way.