Retirement planning

mog27

I'm 29 and just started my first real salary based job about 4 months ago in which I have started to save for retirement through the 401K, opened a Roth IRA and just enrolled in a pension plan. This may be an obvious question, but how important is it to start doing this now at a relatively young age? I'm also clueless about what to invest my funds in so I'm strongly considering paying money for a financial adviser for retirement planning and asset allocation. Are advisers worth it at this point in my retirement planning?

dtlokee

Max out your contributions to your 401k up to what the comapany matches (it's free money) then contribute to to roth with whatever you can afford up to the 2k a year limit. If yo ucan manage your 401k yourself then you may want to look into a finicial planner to help you come up with an investment plan for the 401k (at 29 it should be fairly agressive). The key is to put money away while you're young and it just grows (I have a retirement account that has tripled since 199.

I have seen some free retirement calculators out there on the Internet that may help you.

networker050184

I say you can never start to young. I started my Roth IRA when I was 18. Supposedly I will have a very large chunk once I retire, but haven't done the math . I agree with dtlokee a financial planner is not a bad idea. Just like IT you need experience to know what you are doing, so you might as well find an experienced financial institution to help you out.

mog27

My gf is really against going to a financial adviser saying they are just trying to sell their own products. I know next to nothing about it and I'm debating whether to pay them a bunch of money for it. One quote I heard was $450/year on up. Anyone know of one from a reputable company?

iowatech

This may be an obvious question, but how important is it to start doing this now at a relatively young age?

Unbelievably important.

Also you asked about getting a financial adviser. Put it this way if you owned an airplane and had to fly it everyday would you trust yourself enough to fix it when something was wrong knowing the consequences?

Find a financial adviser, there are sharks out there but they are few and far between and make them all look bad. If you can judge character decently then I'm sure you will be able to find one that you trust to manage your funds.

29 years old is starting late in todays terms but the fact your starting is the best part, so whoever you have manage your money will probably tell you to be aggressive which is normal at this stage anyway.

Max out your contributions to your 401k up to what the comapany matches (it's free money) then contribute to to roth with whatever you can afford up to the 2k a year limit.

It's actually going to 5,000 this year up from 4,000 last year unless your 60 years old..!!! then it's 6,000.

But none the less let your financial adviser know what funds you've got started and they will be able to diversify them for you and tell you what percentage should go where and how much a good monthly contribution should be at your age with the current market situation.

Good Luck!!

dtlokee

mog27 wrote:

My gf is really against going to a financial adviser saying they are just trying to sell their own products. I know next to nothing about it and I'm debating whether to pay them a bunch of money for it. One quote I heard was $450/year on up. Anyone know of one from a reputable company?

The amount you pay is based off how much money you have with them and what they are doing for you. They do tend to try to invest your money in whatever their company is pushing, but you still have control over what you want to do with your money. Mine has done very well for me and I think it is worth the investment based on the amount of money he is moving around, but if you have a couple thousand dollars it dosen't make sense to pay someone $100 a month for advice on what to do with it.

Just do a google search for "retirement planning" and read away, you'll find far more information than what can be presented here.

TechJunky

I have a financial planner and she doesnt charge me anything up front.

I am using Edward Jones. Basically how it works is they get a % of your monthly amount your putting into a stock to take their cut through out the year so they get paid for their information/stability and management of your fund.

IMO its a small price to pay for a PRO to do what they do best.

I wouldn't let a plumber try and fix my electrical or vise versa, so why manage your money when you can trust someone that has been doing it for over 20years?

I have been with them for 3 years and have only positive feedback.

Average is 10% growth each year. Last year I had 14%, so it just really depends on the market. But I haven't fell below 10% yet.

I had some old 401k's I moved them to a single IRA, then I moved them to a Roth IRA. Now once you move them to a Roth IRA you get taxed HARD, depending on how much money you are moving, because its basically like taking it out as cash. Anyhow, it worked out that I would pay around 4k this year on moving the money into a Roth rather than when I retire with a regular IRA, they would take out over 100k in taxes. So I would suggest moving your money when your young if you can afford the financial penality up front, so you dont have to pay thousands of dollars later in taxes.

dynamik

TechJunky wrote:

I am using Edward Jones. Basically how it works is they get a % of your monthly amount your putting into a stock to take their cut through out the year so they get paid for their information/stability and management of your fund.

Same thing, different company. Some of my coworkers get worked up about it and prefer to manage it themselves, but I have enough on my plate and the percentage is small enough that I don't worry about it.

My employer matches up to 3% of our income, so that's what I do since it's free money. I'm not going above and beyond at this point because I have more important items, such as college tuition and cisco lab gear, to spend my money on

Plantwiz

YEAH!!!! someone planning ahead!

First Congratulations on thinking like this dtlokee!!

Second, review my comments on this thread....it applies:
http://www.techexams.net/forums/viewtopic.php?t=29054

If a 19 year old invested $2000 in a growth-stock mutual fund earning 12%.
Added $2000 a year into that fund each year until the age of 26 ($16000 of principal)
By age 65 you'd have $2,288,996
(borrowed from www.daveramsey.com FPU workbook)

That is doing nothing else.

www.daveramsey.com


1. Save 15% of your income (while continue to pay off debt...shouldn't be any but many Americans seem to think debt is 'normal').....since you are asking the quesiton...I"m hoping it sounds like you are not-normal and don't live in debt (except for a home).
2. Invest up to your employer match first.
3. Then fund the rest into GOOD GROWTH ROTH IRA 12% or as high of an APR from any fund at least 5 years old or much older (and they do exist...shop for them).
4. Any additional money left needed to reach your 15% then you finish off your max with your employer.

2008 allows up to $5000 into a ROTH IRA if you make under $155K married filing jointly. If you have not finished your 2007 fund...you have until April 15, 2008 to name those dollars for 2007 and then ALSO fund 2008. SO if you did NOTHING last year, you can possbily fund $9K ($4K for 2007 and $5K for 200 This is going to give you some amazing power to prepare for retirement.

You will need to make sure you do NOT exceed the criteria, but MOST people can easily fund these investments.

Roth's are great as they grow TAX FEE. 401-K's and Traditional IRA's are good, except they will tax you on the backside and if you plan to have over $700K saved at retirement, you'd with you had some tax free money coming back to you to pay all the taxes you will owe.

***

Employer matches are great because essentially a 3-4% match theoretically covers your taxes down the road. THe money grows on PRE-TAX dollars, but when you fund the match you naturaly double your money before you even pick a fund to place it in.

***


CONGRATULATIONS!!

Daniel333

mog27,

Max your 401k out and then some, if you have a stock buying option, take it!

29 isn't young to start saving. It's actully 8 years late.

Max out everything and fire up your finance software. Normally these have a planning guide on how much you need to save.

Our generation needs to earn about $100k a year in order to retire comfortably. Never loose site of that dollar amount in your career. If you are making less than that, you will be relying on social security.

-When do you want to retire?
-How many years will you live after retirement?
-What lifestyle do you want to live?
-Averaging world inflation (global economy!) how much EXTRA will you need.
- Factor any other major purchases in, any good finaicial program will tell you how much you need to be setting aside.
-Do not factor Social security in your plan!
-Make sure your medical insuance is the best option your employeer offers, if the wife's job has it, also get that. All it takes is one heart attack and you can suddenly find your insurance maxed out.

Ultimately the math is way too complicated for us to hammer out, grab yourself a finance package and I think you'll find the numbers quite staggering. Well worth the $40 at Best Buy. As far as finiance planner, unless you are already making the big bucks, I would not worry about it.

dtlokee

Plantwiz wrote:

First Congratulations on thinking like this dtlokee!!

Heh I'm one who lucked out in 1998 with STOCK OPTIONS <gasp> and my company went public which was very popular at the time. Since anything dot com was trading at many times it's actual value I had options to buy at 15.50 and sold them at 73, that's 10,000 options

It worked out very well for me.

mog27

Daniel333 wrote:

Our generation needs to earn about $100k a year in order to retire comfortably. Never loose site of that dollar amount in your career. If you are making less than that, you will be relying on social security.

You mean earning $100k a year in your 20's or earning that closer to when you retire?

Plantwiz

Daniel333 wrote:

mog27,

Max your 401k out and then some, if you have a stock buying option, take it!

BAD ADVICE. Company stock is NOT a good buy in most cases and it's putting all your eggs in one basket.

You don't want to max out your 401K until AFTER you fill your ROTH because you WILL be paying the 401K taxes late in life. You have more flexibility with a Roth then with a 401K, but YOU SHOULD at least meet the match....and if your ROTH doesn't complete your 15% goal...then go back and finish funding your 401K.

29 isn't young to start saving. It's actully 8 years late.

Agreed....Though it's better then not starting until 55

Max out everything and fire up your finance software. Normally these have a planning guide on how much you need to save.

It's not that complicated. A simple calculate and a pencil/paper will work just fine.

The important thing is to PUT that money into those funds....dreaming about it isn't getting it done.

Our generation needs to earn about $100k a year in order to retire comfortably. Never loose site of that dollar amount in your career. If you are making less than that, you will be relying on social security.

WTF? Where are you pulling your data? You can make $40K invest into Roths, 401K, and be a millionare if you pick the right mutual funds, fund them, and DON"T touch the pricipal.

If you make $40 a year from age 30 to age 70.
- Invest $3000 annually into a Roth IRA that makes at least 10%
- Invest 40 years ($3000) per year
- at retirement you will HAVE $1,596,333.20

IF
you do the above at 12% annually
you will have $2,856,580.08 at age 70

So your statement is VERY wrong.

**** BTW, if you are under about age 40-45....you can plan on NOT seeing any SSI, so don't even consider it an option.

-When do you want to retire?

Yes, this can change your equation, but not much and you will find many people expect to work in some capacity. Even our parents went back to work after 'retirment' because it's boring.

-How many years will you live after retirement?

Need to make a good guess, but for myself....I'm gonig to work until I die

-What lifestyle do you want to live?

Better then I have today and I will.

-Averaging world inflation (global economy!) how much EXTRA will you need.

relax....4% is a fairly safe number to work with. Don't forget, if people are buying all the crap they are today.....when they retire they will already have everything. You won't be spending the same amount. Don't let this scare you into messing with your numbers. If you WANT to plan for new wardrobes or big fancy cars....then make those plans, but when you are 85, who are you trying to impress? The youngesters will just think you're some old geezer

- Factor any other major purchases in, any good finaicial program will tell you how much you need to be setting aside.

You don't need a finacial program to do this. Frankly, you can Save up for the things you need and take care of it. It's likley you already have made your 'big' purchase...your home. Not much bigger then that unless you think you are buying huges plots of real estate or huge vacations.

-Do not factor Social security in your plan!

duh

-Make sure your medical insuance is the best option your employeer offers, if the wife's job has it, also get that. All it takes is one heart attack and you can suddenly find your insurance maxed out.

Follow this advice and YOU MAY FIND YOURSELF NOT COVERED AT ALL! Both insurance providers will say the other is the PRIMARY and you'll be left funding the bill.

If self-employed fund your HSA. If you have an option to raise your co-pay or raise your stop-pay...to that (this will lower your rates). If your health sucks...you may not have those options so hang onto the insurace you have.

Ultimately the math is way too complicated for us to hammer out, grab yourself a finance package and I think you'll find the numbers quite staggering. Well worth the $40 at Best Buy. As far as finiance planner, unless you are already making the big bucks, I would not worry about it.

The math is not complicated???

INterest compounded annually
$1000 x 10% = 100

So
Year 1: $1000 invested x 10% APR = $100 add this to your pricipal $1100
Year 2: $1100 x 10% apr = $110 added to pricipal
Year 3: $1210 x 10% apr = $121 added to pricipal
Year 4: $1331 ect...

Set up a simple Excel or OpenOffice Spreadsheet. It's not rocket science.

mog27

Where do pensions fit in here? I just enrolled in my company's in which they deduct 3% of your pay (after tax dollars) into it and become vested in it after 5 years. The good thing, though, is if you leave the company before 5 years they will refund you all the money and any interest. Also, the monthly benefit check attributable to the contributions will be tax-free it says. Even if Im only there 5 years it would be a nice little (and probably only a few hundred if it's only 5 years) guaranteed check from when I retire for the rest of my life. At least that is how I look at it. Was this a smart choice?

iowatech

Until they (the company) realize the burden of a pension on the budget and can't keep it anymore and just eliminate it company wide.

That's the only downside.

Then again maybe your company has the proper method of pension plans and will be able to afford it. Not trying to sound negative but I just don't understand how any company can afford them in today's world.

mog27

iowatech wrote:

Until they (the company) realize the burden of a pension on the budget and can't keep it anymore and just eliminate it company wide.

That's the only downside.

Then again maybe your company has the proper method of pension plans and will be able to afford it. Not trying to sound negative but I just don't understand how any company can afford them in today's world.

Well my company is very big. $14.9 billion in FY07 revenue and is on the NYSE. So I'm hoping that isn't the case with me.

JDMurray

Plantwiz wrote:

BAD ADVICE. Company stock is NOT a good buy in most cases and it's putting all your eggs in one basket.

As most former ENRON employees whose entire retiement was invested in their company's stock agree.

Plantwiz

mog27 wrote:

Where do pensions fit in here? I just enrolled in my company's in which they deduct 3% of your pay (after tax dollars) into it and become vested in it after 5 years. The good thing, though, is if you leave the company before 5 years they will refund you all the money and any interest. Also, the monthly benefit check attributable to the contributions will be tax-free it says. Even if Im only there 5 years it would be a nice little (and probably only a few hundred if it's only 5 years) guaranteed check from when I retire for the rest of my life. At least that is how I look at it. Was this a smart choice?

Well, you'd fair better if you controlled the funds the money is invested into. If you can afford to fund your own Roth first AND then also invest in pension it probably is ok.

I'll bet you can pick better growth mutual funds and take that money further long-term AND still maintain all the control.

Let's look at this example (thinking out loud here while typing):

If your income is $40K (no need to acknowledge...merely an example) and you did mention post-tax dollars...so your Pension vs. a Roth is an apple to apple comparison. We'll drop the taxes for the moment as computing Fed/State taxes for an example is pointless.

Pension
They withhold 3% of $40 = $1200 a year and invest it in their choice or their small menu of funds? Let's use 10% as the APR on that investment.

You work there from age 25-65 (in our perfect world example its possible ).

$1200 contributed annually earning 10% compounded intest will yield: $584,222.17
Not bad and nothing to sneeze at considering for 40 years you'd only be investing $48K (minus the consideration of this being after tax dollars and you'd need to earn about $60K or $15K per year to fund a return of $584K). Not too bad.


However,
Under your own power you could select fund that achieve 10% or even much better. Keeping things easier to compare.....Let's use 10% rate of return again.

You earn $40K. Under ROTH regs you can invest in 2008 $5K of post-tax dollars.

$5K starting this year 2008 and invested the next 40 years at 10% APR
You'll have $2,660,555.53.

***

With the ROTH, after 5 years, you may take that money out of the fund (though I wouldn't advise unplugging that principal)....you could. At retirement, just like your company pension...the money is paid out to you TAX FREE. Do you think you could survive on $2.6M at 65 years old? Might be tough

***


So, not horrible, but you can certainly do much better on your own. And remember if you haven't funded 2007's ROTH, you still are able to until April 15, 2008.


***


Married filing jointly Roth's stop around $155K.....and if you made that much, and attempting to save 15% of your income, you'd want to invest $23K each year...Roth's would stop for you at $5K for each spouse or $10K per year, you'd want to fund additional work plans too.


Main thing, you'll need to decide what is best for you and your household. Point I want to help get out is that:
1. Being well off or comfortable at retirement is possible.
2. It doesn't take a lot of money
3. US people don't need to fret about the shrinking SSI ....it's ok to take care of yourself. We have enough time and we have known for 25+ years that SSI would run out....no true excuss now
4. Even you and I can do this....it just has to be done.