Was also wrong because apparently you don't necessarily need to file if it's a Roth contribution. But if it's the difference in qualifying for the savers credit or not, it could still be worth filing an amended return.
-
Ever wanted an RSS feed of all your favorite gaming news sites? Go check out our new Gaming Headlines feed! Read more about it here.
Retirement-Era |OT| How to Invest For Retirement
- Thread starter TheTrinity
- Start date
- OT
I personally don't feel like I'm going to stay past a year at the job so committing to the 401k when it takes 2-3 years to keep a % of the match is a waste. So it seems like I would have to do a ROTH IRA. Any tips on how I can get started with that?
Visit vanguard or fidelity or another site and open account. You still have until April 15 to co tribute for 2018.
I did research on them both and I kind of have no idea what I'm looking for. I think I'm leaning towards Vanguard.
Short answer: deposit $5,500 into Vangaurd, invest in VTI or VTSAX.
The differences are pretty negligible for someone looking to passively invest. Both are well respected and have good funds to invest in with low fees. I'm not sure what the split is on Era but I'd guess it leans slightly toward Vanguard.
Depending on how hands-off you want to be you can either invest in a target date fund and have everything managed for you but with a slightly higher (but still acceptably low) fees, or manually control your allocations and invest in total market funds.
If you manage it yourself, Total US Market is a good starting point. Eventually you will want to add Total Bond Market to balance your risk. And opinions differ on Total International Market but it's another way to diversify.
I'm having a hard time trying to figure out the point of using a roth IRA over a traditional IRA. Unless you are very early in your career it seems that most people would expect to have a lower income in retirement than higher, and thus the traditional IRA would be better. The other scenario seems to be a hedge against higher tax rates enacted in the future, but this seems more on the speculation side of things for this thread. So sounds like for a family with $80k yearly income why would I pick a roth?
If you expect to have a lower income after retirement then in most situation, IRA are better than ROTH. There are exception based on actual income (there are calculator on the web that can help figure out in in you are in these.
Of course if tax rate increase in the future that can skew toward ROTH but can you predict the future?
But yes your are most likely right on doing IRA.
Thanks, I definitely want to be hands off for now.
Question here:
Dividends and capital gains
Reinvest
or
Transfer to your money market settlement fund
1. Traditional accounts charge a penalty for withdrawing money before age 59.5. For Roth accounts, there is no penalty on withdrawals of the principle. This makes Roth better if you want to retire before 60.
2. Roth is better as an emergency fund because of #1 and because you don't pay tax on withdrawals.
3. Having a traditional IRA balance can prevent you from being able to do the Backdoor Roth IRA method, in the event that your income increases enough that you would want to.
4. You say "The other scenario seems to be a hedge against higher tax rates enacted in the future, but this seems more on the speculation side of things for this thread". I would argue that one of the fundamental tenets of investing is that one must be compensated for risk. If two investments have the same expected return but one has more risk, you should always choose the less risky one. All other things being equal, the fact that there is less uncertainty in the future value of a Roth account is something that is valuable and may be worth sacrificing some expected return.
Whats the diff between a Roth IRA and me just opening a Brokerage acct from Fidelity?
Well assuming it is invested the capital gains, not technically interest. But yes.
I think I have down what I want to focus on over the next 5 years. Time is the biggest obstacle against me and even though this is just arbitrary, I think it's important to hit that $100K net worth (or $100K in investments) mark as soon as possible to really get the ball rolling. I'm on a good track to actually hit this soon, but the main thing that's been setting me back is my student loan. I have about just 20K on them left at a 4% fixed (5 yr loan), so I don't think I care too much now that I've ran the numbers - it seems like it would be stupid to solely focus on them at that fixed rate with 20K left.
The savings of paying that off over 4.5 years instead of 1.4 results in saving of $1.1K in interest isn't to me worth the psychological feeling of accomplishment (even though having zero debt would feel amazing). If I have a change over heart midway through paying it off, I could use my emergency savings to immediately wipe out the rest of the balance and work towards quickly building it back up over 4-5 months. If I got really unlucky and something else came up then I would consider tapping my ROTH IRA account (not before looking into balance transfer options to 0% if any).
I've been able to take my expenses over the past few years and I now have an understanding of what I can live on comfortably on. For retirement I would like to have double that amount (and I'm not factoring social security which should still be around, even if not as beneficial). I'm assuming I would need it for healthcare related things and I have rent still built into that number (because I'm currently paying rent). I'm glad that I don't really feel the need to spend a ton of money like that each year. Once I get to that 100K milestone, I think should be able to proceed with 12K annual contributions to retirement accounts at minimum and still be on track for a fairly comfortable retirement. That is of course unless all sorts of issues arise with inflation. With that I can focus on other things like assisting with supporting my mom, home ownership and other opportunities.
Taking a read through this was pretty insightful: https://fourpillarfreedom.com/the-math-behind-why-net-worth-goes-crazy-after-the-first-100k/
The savings of paying that off over 4.5 years instead of 1.4 results in saving of $1.1K in interest isn't to me worth the psychological feeling of accomplishment (even though having zero debt would feel amazing). If I have a change over heart midway through paying it off, I could use my emergency savings to immediately wipe out the rest of the balance and work towards quickly building it back up over 4-5 months. If I got really unlucky and something else came up then I would consider tapping my ROTH IRA account (not before looking into balance transfer options to 0% if any).
I've been able to take my expenses over the past few years and I now have an understanding of what I can live on comfortably on. For retirement I would like to have double that amount (and I'm not factoring social security which should still be around, even if not as beneficial). I'm assuming I would need it for healthcare related things and I have rent still built into that number (because I'm currently paying rent). I'm glad that I don't really feel the need to spend a ton of money like that each year. Once I get to that 100K milestone, I think should be able to proceed with 12K annual contributions to retirement accounts at minimum and still be on track for a fairly comfortable retirement. That is of course unless all sorts of issues arise with inflation. With that I can focus on other things like assisting with supporting my mom, home ownership and other opportunities.
Taking a read through this was pretty insightful: https://fourpillarfreedom.com/the-math-behind-why-net-worth-goes-crazy-after-the-first-100k/
That's a good illustration of the power of compound interest, but I think it focuses a bit too heavily on $100k as some sort of landmark when it's really just an arbitrary figure plucked out of the air for illustrative purposes. "Net worth goes crazy after the first $100k" is a bit reductive, really. If you're saving $1k a year or $50k a year the effect of compound interest is the same, it's just the final figure that scales (assuming that the amount being saved remains constant, of course).
Yeah, that's why I mentioned that in my post. I know it's arbitrary, but running the numbers, if you get to that and stop contributing, letting that grow for 37 years (if you get to 100K by 30), that could be $1 million by retirement using average assumptions.
All in all, the more you have saved earlier the better. I feel like there are younger people who don't understand this who might be starting off in decent to high paying jobs and not realizing how much good they can do for their future by committing to this for the first few years.
Time is too important of a factor. What I have generally have seen from people is that they live at home the first year or two in order to save up for buying a home. If was in that situation and living at home, I would save 22K-24K a year for retirement (maxing out accounts) during that time period to get a nice boost.
So I figured I could here for advice. So, my first job out of college had me start my 401(k) with them which I invested in for a year.
I then found another job and have been contributing to a new 401K plan. Problem is, I never did anything with my plan from my previous employer and it seems to have rolled over into an IRA managed by BMO. Since I was only there for a year, the balance is very low and has been gaining almost no interest so i'm not sure what to do with it or where to even begin.
Anyone have any advice? Should I just go to BMO and see what my options are?
I then found another job and have been contributing to a new 401K plan. Problem is, I never did anything with my plan from my previous employer and it seems to have rolled over into an IRA managed by BMO. Since I was only there for a year, the balance is very low and has been gaining almost no interest so i'm not sure what to do with it or where to even begin.
Anyone have any advice? Should I just go to BMO and see what my options are?
OP
OP
I think it's just chosen because it's a significant enough chunk of what a person would generally need for retirement and also versus annual salaries.
Starting from first job after post-secondary I think it took roughly 8 years for the first 100k. 2nd and 3rd took like 1.5 years each.
This is of course also down to a significant increase in salary over that time but it is interesting. It fairly quickly gets to the point where monthly bounces in the investments significantly outstrip job income.
Re: traditional vs Roth
Assuming I'm looking to max my annual contribution, isn't the Roth the better option by default since that would maximize the amount of post-tax money I can have in tax advantaged accounts? IOW, putting $6k in a Roth would be better than $6k in a traditional + whatever amount I'm saving in taxes upfront into a non-tax-advantaged account, right?
Assuming I'm looking to max my annual contribution, isn't the Roth the better option by default since that would maximize the amount of post-tax money I can have in tax advantaged accounts? IOW, putting $6k in a Roth would be better than $6k in a traditional + whatever amount I'm saving in taxes upfront into a non-tax-advantaged account, right?
If you want to lower your current taxable income, that's an argument for traditional. If you think you'll pay a lower tax rate now than when you retire, that's an argument for roth. If you think taxes will be higher when you retire compared to now, that's an argument for roth.
The cap is the same regardless of which type: $6k so you just decide if you want to pay the taxes on it now or later. You can even split it so $3k in roth and $3k in traditional if you wanted, but the total in any combination of IRA accounts is $6k for 2019 (it was $5.5k last year and you can still contribute to last year until April 15).
The cap is the same regardless of which type: $6k so you just decide if you want to pay the taxes on it now or later. You can even split it so $3k in roth and $3k in traditional if you wanted, but the total in any combination of IRA accounts is $6k for 2019 (it was $5.5k last year and you can still contribute to last year until April 15).
Aside from the tax now/tax later, that's one of the general arguments against a Roth. Less taxes now -> invest more -> more compounding returns -> more money. If those contributions are in the 22% bracket that's $1300 in taxes you could be deferring and investing. And if you qualify for a health savings account you could use that as a second tax advantaged account.
I recommend this MMM article; it helped make sense of some of the retirement math for me.
How to Retire Forever on a Fixed Chunk of Money
https://gj837.app.goo.gl/Z3QY
How to Retire Forever on a Fixed Chunk of Money
https://gj837.app.goo.gl/Z3QY
My accounts are heavily ROTH but I'm honestly thinking about hedging more as I go up income and allocating more to traditional to bring me below the next tax bracket.
The Shockingly Simple Math Behind Early Retirement was my epiphany.
https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
I showed my husband the networthify.com calculator results from the link in that article. He claims he's never gonna be able to retire. But I showed him that even being ridiculously conservative (2% annual ROI when even our savings account is 2.5%) that we could "retire" in 10 years or less. Thanks for the link to the articles, FliXFantatier and Chaosblade . Makes me (and him) feel a lot better.
Tbh I'm only 31 and I personally want to keep working part-time (as I have been for the past 3.5 years) for more than 10 years, but we'll see where my health takes me. I know my husband would be thrilled to retire whenever though. I just checked our state's Obamacare site and if it was just me working and we didn't draw from retirement (we could live on my salary), we'd get a $200/mo tax credit and the cheapest limited network plan would only be about $300/mo in premiums and it includes all of our current doctors anyway.
Last edited:
I think the major factors come down to:
1) Comparing current margin tax rate vs estimated future marginal tax rate
2) Likelihood that tax rates increase and tax income brackets shift in future
3) Tax planning opportunities for traditional 401K withdrawals
One thing on some of the more basic financial blog posts to don't discuss often enough the fact that there is tax planning strategies that can be set in place for keeping your taxable income low in retirement. Obviously #2, above can put a wrench in this planning because there's a lot that's unknown.
For me personally, I've decided to start allocating between both ROTH 401K and traditional 401K and continue to boost traditional more as I move up in income. If it's feasible that there's a strategy for keeping income retirement taxable low, then I'm certainly going to focus on making sure I'm looking to that closely, especially if I want early retirement to be an option (if this is something I want to do, I'd like to do it around the age of 50).
Through the time I've spent looking into all this, I've determined that I live a relatively comfortable life on 35K to 40K in expenses and I could probably push that further and be good. This wouldn't be the case if didn't have a career that offered good health insurance. Hopefully this improves for everyone in the US in the future. If I was at 60K+ expenses, I'd be pretty much be balling out on vacations, lol (or if I had a kid).
Damn, reading articles like this make me feel bad about my spending habits. I could retire so, so early in life considering I have already saved a decent amount and I am really only at a 25% savings rate over the past four years according to my finance spreadsheet I keep.
OP
OP
I don't think the intention is to make you feel bad, you should feel good!
A 25% savings rate leaves a vast gulf between you and the average person who struggles to save even 10%.
A 25% savings rate leaves a vast gulf between you and the average person who struggles to save even 10%.
My current savings rate is 40% based on the numbers and the past couple of years. I'm sure I spent more when I first moved here, but I've been pretty efficient about spending through doing lots of research, and timing purchases with sales.
If paying down student loan debt counts towards savings, then savings rate is a little higher than 40% (EDIT: it's 52% if pay down of student loan principal counts?). I pretty much have everything I need and I'm paying $1245 a month in rent. I've already established I can live comfortably on $35,000 of expenses (In Chicago) and I could push this down further if I really tried. Those few 10,000's of income are more valuable because they are taxed a lower marginal rate. I honestly think that most Americans can live $35,000 (adjusted for standard of living by state). I think the biggest X factor for people though is their healthcare costs. That shit will ruin that $30K lifestyle, which is why it's important to eat proper, exercise, and practice good hygiene to supplement what may be shitty healthcare for some of that income level.
If paying down student loan debt counts towards savings, then savings rate is a little higher than 40% (EDIT: it's 52% if pay down of student loan principal counts?). I pretty much have everything I need and I'm paying $1245 a month in rent. I've already established I can live comfortably on $35,000 of expenses (In Chicago) and I could push this down further if I really tried. Those few 10,000's of income are more valuable because they are taxed a lower marginal rate. I honestly think that most Americans can live $35,000 (adjusted for standard of living by state). I think the biggest X factor for people though is their healthcare costs. That shit will ruin that $30K lifestyle, which is why it's important to eat proper, exercise, and practice good hygiene to supplement what may be shitty healthcare for some of that income level.
Last edited:
Damn the site is annoying to navigate I don't even know where I would begin to invest in VTI or VTSAX
You wouldn't happen to know where I can change it?
We did a few pages ago. They're awesome. I just wish I switched to a HSA-compatible plan sooner. Could've done it a few years before we finally did.
Well, this would not be fun: https://www.businessinsider.com/nex...-percent-drop-by-year-end-john-hussman-2019-4
That article is apparently for susbscribers only! But also apparently, turning off the "page style" in my browser lets me read it.
Do I switch to more conservative holdings or just stay the course because lazy? HM. lol (the answer is: i am lazy)
Last edited:
People have been posting "imminent market crash" articles since I made my Roth and have been watching the retirement thread (around 5 years now). One of them will be right eventually, but I don't put much stock in them.
If everybody thought it was true the prices would have already crashed.
Timing the market requires you to know something that very few others do. Which obviously isn't likely for any of us or based on articles on the internet.
OP
OP
I don't even have to read the article to know it's BS. This is clickbait, but created for the economic intelligentsia. The people writing these kind of articles gave a one year resting period after the 2008 crash and then started predicting crashes on a regular schedule again.
I wouldn't really call 87% of the funds he managed being withdrawn a successful track record. 6.7 billion to 1 billion over 8 years. If you just didn't listen to this guy, you would be averaging about 13.4% return per year if you reinvested dividends since 2013. Even a narrow window from 2017-2019 still gives 8.9% returns. I went back and read a few of his older reports. A lot of what he said would happen never really materialized. In 2011 he was whining about historically high commodity prices, and most of those went back down. One can sort through them manually over a 10 year period here:
https://www.nasdaq.com/markets/rice.aspx?timeframe=10y
As far as predicting the previous two crashes... well, most of his articles seen here: http://www.hussmanfunds.com/market-comment-archive/ are negative for years on end. So I don't know how accurate it is to say he "predicted" anything. The guy is just so cynical that eventually he's going to be right.
I have cash sitting around. It doesn't need to be liquid, but I don't want to store it away forever, nor do I want to risk much, as it's ancillary emergency-fund money, or might be used for a big purchase in the unforeseeable future.
CDs seem to hit around 3% APR if you commit to 2+ years.
Using hypothetical numbers - assume ~$20K - it seems the best way to do this would be to put ~$2,500 into a 2yr CD every three months. After that first two year cycle, I have access to new "Releases" of my interest-bearing funds every three months. Basically, breaking the CDs across a revolving door. Does that make sense? Is it a good idea or a dumb idea? Can't seem to find any advice online.
CDs seem to hit around 3% APR if you commit to 2+ years.
Using hypothetical numbers - assume ~$20K - it seems the best way to do this would be to put ~$2,500 into a 2yr CD every three months. After that first two year cycle, I have access to new "Releases" of my interest-bearing funds every three months. Basically, breaking the CDs across a revolving door. Does that make sense? Is it a good idea or a dumb idea? Can't seem to find any advice online.
My local bank had a deal for a 2.5% savings account if you had a certain minimum balance (can't remember but I think it was $5k?). It doesn't seem to exist anymore, but I got in on it and put all our free cash in there. Much less hassle than floating CDs and there's instant transfers between my checking and savings.
This year I opened an IRA after realizing that just a 401k that I don't pay attention to is not a good idea. The issue I have right now is understanding asset mix.
I first started buying VTI and more recently have a small amount of BND and VXUS. When I'm in the Vanguard app, I can change the asset mix of stocks, bonds, and short term reserves. Right now it's (foolishly?) at 100% stock which it can't reach cause I have BND in my portfolio.
If I change the percentages, will Vanguard sell some of my stock ETFs and get more of BND; if yes, what if I had multiple bond ETFs, how would it decide? Also, I can't seem to manage the ratio of domestic and international stock percentages. How do I manage this with Vanguard?
I first started buying VTI and more recently have a small amount of BND and VXUS. When I'm in the Vanguard app, I can change the asset mix of stocks, bonds, and short term reserves. Right now it's (foolishly?) at 100% stock which it can't reach cause I have BND in my portfolio.
If I change the percentages, will Vanguard sell some of my stock ETFs and get more of BND; if yes, what if I had multiple bond ETFs, how would it decide? Also, I can't seem to manage the ratio of domestic and international stock percentages. How do I manage this with Vanguard?
The asset mix they show you is just a target. You can set it to whatever you want, but unless you make any changes to your investments yourself it doesn't do anything. It's just there to give you a visual comparison to "what I want" versus "what I have" to help you direct your investments.
I never changed mine, it shows my target at 90% stock 10% bond, but I have 100% stock since that's all I buy.
Also if you're young, 100% stock is fine. Different people will have different recommendations for how much you should hold in bonds, ranging from conservative ideas like holding a lot of bonds, to holding a number relative to your age, all the way to the aggressive approach of never bothering with bonds ever and just riding stocks into retirement.
So the rebalancing that people do is just them doing buys and sells to keep their preferred ratio?
Thank you. I was way off on understanding how that worked. It's great to have some clarification. I'm 28 so I think I'll ride a while longer with having a higher portion of stock.
Yeah, Vanguard won't rebalance between funds you own, but they do have "funds of funds" that are based around certain asset allocations that do get rebalanced to maintain the desired ratio. Target date funds are the most relevant here, but they also have basic balanced funds like 50/50 stock/bond, 60/40, etc.