Retirement-Era |OT| How to Invest For Retirement

reKon

Member
Oct 25, 2017
3,743
I played with this brilliant tool I found off reddit: https://socialsecurity.tools/app.html

You have create your account in order feed some data into the tool.

Anddd holy shit if this ends up being accurate... I used a bunch of assumptions for this. I assumed my average yearly income would be $16,000 lower than what I currently make (it's likely that I would earn at the very least 25%+ more over my career though). I also set it so that I would stop working entirely at the age of 50 (again, this isn't likely, but just wanted to see what numbers would look like since this what I'd be going for ideally).

I've also seen that starting in 2034 if the current law isn't amended, we would see a reduction to 79% of social security benefits (not sure if this applies to all retirees or new ones only). To stay conservative, I took whatever yearly benefit they are estimating and multiplied by 60% (so I took an extra 19% off the estimated 21% reduction). If I layer this on top of my existing retirement plan, I'm actually at an incredible spot. Based on all of these, they are saying that I would receive a social security benefit of 25,000 at the age of 67. 60% of that is 15,000. If I adjust few sliders up to something a little more likely and change the age to 55 for when I stop working, I get to 30,000 yearly benefit, which 60% is 18,000, using my conservative estimate. If the reduction is only ~20%, an extra 24,000 a year would be amazing...

For the whole time I was only putting like 8,000 in the personal capital retirement assumptions, lol...
 
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Chaosblade

Resettlement Advisor
Member
Oct 25, 2017
2,800
I just assume social security will be gone by the time I retire and plan accordingly. If I do get it, that's just gravy.
 

Fuhgeddit

Member
Oct 27, 2017
2,515
Does anyone have a Transamerica account? I'm unsure what to invest in honestly, but I re-balanced recently. Just unsure about it though.
 

Euphoria

Member
Oct 25, 2017
2,871
The expenses of your 401K are what it costs you to have it. Your funds should have expense ratios listed which is the fee you are paying to hold those funds. Also check for any other fees.
Thanks, I think I’m seeing what you’re referring to which is the different funds I have my my money allocated to.

They vary from 0.31% to 1.15%. That’s what it lists under “total inv. expense - gross”
 
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reKon

Member
Oct 25, 2017
3,743
I just assume social security will be gone by the time I retire and plan accordingly. If I do get it, that's just gravy.
You could make that assumption, but I highly doubt that it would be erased entirely as too many people in the US will be fucked and it will be politically very unpopular. Think about the current state millennials are in and the fact that in the future - they will encompass the largest generation. I think most of us here fit in that group and statistically our group aren't having as many children as past generations. We will be the majority and we will be dictating the laws. A 60% reduction is my still my wild guess. As a tax professional, it would seem very strange to just phase out SS tax. If this actually happened, I think it would be just replaced with some alternative worse program that provides some sort of supplemental income.

I guess 20 years from now we'll likely have a better estimate on where things will go, but still intend on enjoying my 30s and 40s once I get my retirement accounts to a certain level. For me, not having social security will just mean less old person flexing :) (and less money to give away).
 

Chaosblade

Resettlement Advisor
Member
Oct 25, 2017
2,800
Thanks, I think I’m seeing what you’re referring to which is the different funds I have my my money allocated to.

They vary from 0.31% to 1.15%. That’s what it lists under “total inv. expense - gross”
.31 is acceptable but not ideal. 1.15 is goddamn high. You want to use the same approach from the OP for your 401K too. Index funds with diversity and low expense ratios. What your best option is just depends on the funds available.

Reason you were asked about expenses is whether or not it's worth it for you to invest outside your 401K, or just increase your 401K investment. In your case (and many cases in general) it absolutely is. Hit your employer match for the 401K to get that free extra money, then for further retirement investment go with a Vanguard or Fidelity IRA. You can get funds with lower expense rations, and that means less of your investment is getting cut to fees, which means more growth for you. If you max your IRA (6K/year now) you can go back to adding more to your 401K.
 

Euphoria

Member
Oct 25, 2017
2,871
.31 is acceptable but not ideal. 1.15 is goddamn high. You want to use the same approach from the OP for your 401K too. Index funds with diversity and low expense ratios. What your best option is just depends on the funds available.

Reason you were asked about expenses is whether or not it's worth it for you to invest outside your 401K, or just increase your 401K investment. In your case (and many cases in general) it absolutely is. Hit your employer match for the 401K to get that free extra money, then for further retirement investment go with a Vanguard or Fidelity IRA. You can get funds with lower expense rations, and that means less of your investment is getting cut to fees, which means more growth for you. If you max your IRA (6K/year now) you can go back to adding more to your 401K.
Thanks for the info.

At the moment the fund with 1.15% is the high risk fund and has the smallest amount of money in it. Maybe it’s time to move some stuff around.

I’ve only really began getting more involved in stuff like this over the last year or so don’t mess with my 401k too often. My overall return so far this year is around 14% but talking to others it feels like I’m missing out some extra gains so I’m eager to learn.
 

demosthenes

Member
Oct 25, 2017
4,200
Thanks for the info.

At the moment the fund with 1.15% is the high risk fund and has the smallest amount of money in it. Maybe it’s time to move some stuff around.

I’ve only really began getting more involved in stuff like this over the last year or so don’t mess with my 401k too often. My overall return so far this year is around 14% but talking to others it feels like I’m missing out some extra gains so I’m eager to learn.
I'll post more later about the questions you answered but the post you quoted is absolutely true. An expense ratio of .15 to 1.15 over 30 years can be hundreds of thousands of dollars.
 

vypek

Member
Oct 25, 2017
3,839
Anyone have an article or something that can give insight on how rates are chosen for funds? I'm specifically interested in why Vanguard had lowered the fees for some of their ETFs but the Admiral Share mutual fund equivalents are slightly higher in terms of expense ratio
 

reKon

Member
Oct 25, 2017
3,743
Man wealthfront giving 2.51% APY and Ally has stuck to it's 2.2% for months. I wonder how this will all play out over the next couple of years.
 

vypek

Member
Oct 25, 2017
3,839
Man wealthfront giving 2.51% APY and Ally has stuck to it's 2.2% for months. I wonder how this will all play out over the next couple of years.
Is this just a case of Wealthfront just being more generous or is there some kind of catch here? I don't know what exactly people are supposed to look out for in a bank account. I want to say it needs to be insured and be a certain type of account but when I'm looking around at accounts to put money into, idk what to look for.
 

reKon

Member
Oct 25, 2017
3,743
Is this just a case of Wealthfront just being more generous or is there some kind of catch here? I don't know what exactly people are supposed to look out for in a bank account. I want to say it needs to be insured and be a certain type of account but when I'm looking around at accounts to put money into, idk what to look for.
In terms of being safe, the account just needs to be FDIC insured. There's no catch - they are just being highly competitive. My assumption is that these places can offer such high rates because the cost of running the online bank is a lot less than a traditional bank/credit union.

Things that people generally look out for is options for transferring money (including the speed), ATM access, minimum balance requirements, level of support, transfer limitations (for many banks you're only allowed 6 a month).
 

vypek

Member
Oct 25, 2017
3,839
In terms of being safe, the account just needs to be FDIC insured. There's no catch - they are just being highly competitive. My assumption is that these places can offer such high rates because the cost of running the online bank is a lot less than a traditional bank/credit union.

Things that people generally look out for is options for transferring money (including the speed), ATM access, minimum balance requirements, level of support, transfer limitations (for many banks you're only allowed 6 a month).
Okay, thanks. I had been thinking that an online bank is what saves them money and lets them operate while giving higher rates to customers. I thought that is what Ally did as well but I also felt like Ally has physical buildings so I doubted that though.

I'll keep those factors in mind. Although I'm not crazy about it, I am aware of the transfer limitation since I have that with my current bank.
 

reKon

Member
Oct 25, 2017
3,743
Okay, thanks. I had been thinking that an online bank is what saves them money and lets them operate while giving higher rates to customers. I thought that is what Ally did as well but I also felt like Ally has physical buildings so I doubted that though.

I'll keep those factors in mind. Although I'm not crazy about it, I am aware of the transfer limitation since I have that with my current bank.
I was considering getting one of these high interest checking accounts, but I don't want to overdo it - I have my credit union, ally savings account, and T-Mobile Money account (which is a checking/savings hybrid already - I'm only keeping for the 4% interest rate on $3,000).

I've sort of realized that a lot of the time, I've left money in my checking account for the sole purpose of covering my credit card payments each month. Therefore on average I could be making that money that's sitting there work and gain interest in addition along with the emergency savings I have. I didn't know about this until I came across this (kind of obvious too), but Ally gives you overdraft protection using the online savings account. I've opened a checking account there now and will plan on switching direct deposit to to here from my credit union so that the money is at least doing something whether it's in the checking or savings account. With this, I can throw everything into savings for the most part where that money will be earning some interest and overdraft protection will just kick in from automatic bill payments (or I'll transfer money over before the week of credit card payments).
 

ChrisR

Member
Oct 26, 2017
2,717
I just treat Ally as my savings account. I still have my direct deposit going into my credit union, but it's all checking and it's run very lean.
 

Euphoria

Member
Oct 25, 2017
2,871
So I went ahead and due to the comments on my 401k funds sapping a lot of money from me I have moved much of them into funds that are have lower expense costs. Went from a high of 1.15 to a high of 0.31.

Doesn’t seem like too many offer lower than that on my Principal 401k plan so maybe I’d have to move it over to something else to find those lower rates?
 

demosthenes

Member
Oct 25, 2017
4,200
Thank you.

See bolded for responses to your questions.
Sorry I didn't respond earlier.

On the 401k, most plans don't have a lot of low expense ratio funds. Even if they're low exp ratio you're usually paying more than you would just to invest in them outside of the 401k b/c of other fees. Others answered the question about the expense ratios. Glad to see you moved into some lower exp funds.

I would do something along this:
1) Establish an emergency fund if you haven't already.
2) Work on paying down the car loan as fast as you can. Depending on what your house mortgage is, if low I would just keep making normal payments on it. This varies person to person.
3) Open up and plan on funding a Roth IRA or traditional IRA. This requires more knowledge about your situation. Would be happy to discuss more. Basically it's, do you want to be taxed now, or later.
4) Saving for future items, new car, etc.
 

Euphoria

Member
Oct 25, 2017
2,871
Sorry I didn't respond earlier.

On the 401k, most plans don't have a lot of low expense ratio funds. Even if they're low exp ratio you're usually paying more than you would just to invest in them outside of the 401k b/c of other fees. Others answered the question about the expense ratios. Glad to see you moved into some lower exp funds.

I would do something along this:
1) Establish an emergency fund if you haven't already.

At the moment I have enough in savings to cover 2-3 months of expenses.

2) Work on paying down the car loan as fast as you can. Depending on what your house mortgage is, if low I would just keep making normal payments on it. This varies person to person.

That’s actually our #1 priority. Shortly after getting the car we instantly regretted it because of payments. Mortgage is $1500/month including taxes and insurance so when we can we throw extra towards the principal but the priority is to first get rid of the car payment.

3) Open up and plan on funding a Roth IRA or traditional IRA. This requires more knowledge about your situation. Would be happy to discuss more. Basically it's, do you want to be taxed now, or later.

I think this is going to be our next move. Lowering my job 401k contribution to where it needs to be just get the maximum match from my job and anything extra that was going in would go into a Roth instead.

4) Saving for future items, new car, etc.
Responses are in bold. Again thanks a lot for responding.