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 Post subject: I am 39, Starting retirement planning and Overwhelmed. :(
PostPosted: Sat Apr 21, 2007 9:12 am 

Joined: Mon Apr 16, 2007 2:23 am
Posts: 8
Location: Beyond The Sun.
This is sort of a first post introduction and a request :D

HELP!!! :shock:

Ok, I am 39 and Although somewhat behind schedule but, I am trying to get my retirement savings Planning started. I think I made a mistake, I started reading the internet. It melted my brain.

I get the GSR feeds everyday and have been for 2 months, and to be honest, it's the only sane stuff that makes sense and I comfortable with.

Here is my situation..

I am a State Employee and am in a state retirement plan that as of Today will give me ~$25K of income when I retire in 2030 (assuming age 62).

I need to make the next step to add to that, the goal is within the next 3 years to have 15% of my income going to some combination of other vehicles, automatically through payroll deductions, but what? I am not one that checks the portfolio everyday or is interested in trading. I am not an expert, so I guess I want my money managed for me and I'll buy and hold.

Because of my job I have a 403b available but, is tax deferred, is that what I want?

Should I start a Roth IRA until I am contributing the maximum allowed and then:
A) Start adding to a targeted fund?
B) Start adding to mutual funds? On that note, I find http://tinyurl.com/2adlll very appealing but, don't have enough to start without the fees. I suppose I could open an account start with 2 or three and just pay the low balance fees for a few years and work from there.

or No Roth-IRA and just a targeted fund??

See what I mean... where to start??

I have signed up for the free financial planning that is available via the state retirement plan through Ernst and Young and I am also going to a day of financial work shops offered by the plan in June but for now, I am just trying to get a leg up on this.

Thanks for reading


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PostPosted: Sat Apr 21, 2007 11:40 am 

Joined: Sun Apr 15, 2007 1:29 pm
Posts: 25
You can start by saving anywhere--your mattress or your bank. What you live off of during retirement doesn't have to come 100% from your retirement account. To answer your question about tax-deferment--it all sort of depends. It's a great idea to defer tax in some way, whether by Roth IRA or 403(b), and it doesn't really matter which program you choose. Allow me to demonstrate:

You save $1.00 which could grow in both accounts at 8% yearly. Tax is 25%, you withdraw after a year.

Roth IRA: $0.75 saved (1x.25). Within one year grows to (.75x.08) = $0.81 (no tax on withdrawal) = $0.81

403(b): $1.00 saved (tax deferred). Within one year grows to (1x.08) = $1.08 taxed at 25% on withdrawal = $0.81

This oversimplifies things extraordinarily, but Roth IRA/403(b) is a moot point in my mind. You can't predict 40 years forward or even 20 in your case. Taxes may change, markets may rise or crash...who knows. What does matter is the investment policy and record of the brokerage firm in which you invest. Plenty of people could offer you suggestions on the Roth IRA, but to make a good determination you need to ask those questions of your 403(b) and whatever IRA you might choose. Who is your 403(b) through, if you don't mind me asking?

A lot of people may recommend purchasing index funds, but considering the age you're starting at, I would go with something much more conservative. The brokerage firm I have my money with is all about maintaining capital and low risk--they're east coast old schoolers, not west coast VCs--and they warn me against buying American index funds right now since general stocks are trading in a range and they can't know for sure where it will go. Take their (and others) advice with two heaps of salt.

As for general advice (I can try to answer more specific questions if you have them), it sounds like a good idea to go to that workshop, and maybe check-out (library) some of the books JD has reviewed here. There's a lot to this subject, and I don't want to inundate you--but if you have additional queries, please ask them and I (and I'm sure others) will try to help!


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PostPosted: Sat Apr 21, 2007 7:10 pm 

Joined: Mon Apr 16, 2007 2:23 am
Posts: 8
Location: Beyond The Sun.
Thanks for the input, thats a good start at least. The example of tax deferment is great, makes sense now. I do want to pickup some books and start reading up. There are so many of those too. One of my co-workers is recommending i start with David Bach's "Smart Couples Finish Rich", I am 6th on the wait list at the local library. It's not on the GSR list but I see one of Bachs other books is.

As far as 403B companies, I have a pretty wide choice there the PDF for participating companies on HR's website is four and a half pages long, the biggies are there, Oppenheimer, Vanguard, T. Rowe Price, American (Twentieth) Century, etc plus a bunch of others.


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PostPosted: Sat Apr 21, 2007 7:44 pm 

Joined: Thu Apr 12, 2007 6:40 pm
Posts: 31
Location: Milwaukee, WI
Hi Ziptar-- I'm 40 and am looking at a similar retirement timeline. I started making contributions--very small ones, but contributions nonetheless--years ago to tax-deferred 403b and IRA accounts (TIAA-CREF). However, only over the past five years or so have I really begun to understand my finances within the context of a true vision.... but thank goodness I had already started a retirement account, however meager! I began with the contributions because it was easy to do, and I didn't really miss the money. The easiness part of it was key: I didn't know a thing about personal finance back then, but contributing to the 403b took on its own life. It's possible that other options will make more money, but I'm glad that I did *something*.

The moral of the story, at least from my perspective, is that whether you make contributions to a Roth IRA or a 403b, you will probably come out ahead regardless. And when you develop your finance skills over the years, you can always decide to contribute less to one account and more to another. The key thing, however, is just to do *something*. In my case, I did what seemed easiest to deal with (a tax-deferred IRA at one job, and a 403b for another previous job and for my current position). Perhaps, for now, that's all you need, too.

Don't let the choices scare you; talk to co-workers to see what they do, and if they're happy with their accounts. But definitely do something, soon, because whether it's an IRA or 403b, you'll likely stand to gain.

At my workplace, financial advisors and counselors from IRA/403b companies make appointments with workers in order to help give advice on the portfolio details. But the first step is signing up for something. Don't forget that as time goes by, you can have both an IRA and a 403b, and max out both.

Also, does your workplace match funds contributed to a 403b or IRA? Since you have a pension, I doubt it, but it wouldn;t hurt to ask. If your workplace matches a certain amount of funds contributed to one of these accounts, then you should take that "free money" by contributing.


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PostPosted: Sun Apr 22, 2007 12:10 am 

Joined: Sun Apr 15, 2007 1:29 pm
Posts: 25
Even before you finish reading those books I would recommend that you start saving. Try some old fashioned number crunching. How much do you ideally/realistically expect to live on every year after you retire? You'll need to think about how many years you think you'll need that income. Here's http://www.bankrate.com/brm/calc/401k.asp to help.

You can subtract your pension, of course, and whatever money you might have saved up outside IRA/403b plans when you retire.


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PostPosted: Sun Apr 22, 2007 4:33 am 

Joined: Mon Apr 16, 2007 2:23 am
Posts: 8
Location: Beyond The Sun.
Oh I wish my employer contributed to 403(b), that would have meade the decision so much easier.

Thanks for all that input RJ, I do want to start right away, I re-read my post just now and when I said "the goal is within the next 3 years to have 15% of my income going to some combination of other vehicles, automatically through payroll deductions" What i meant was to be at 15% in three years, I'll actually start this year with 5%, then next year 10%, then 15% after that. From there I can do more into something else but, I have 529Bs to think about also.

oeolycus, thanks for yet more advice. calculator helps a ton!
The short term goal is just to do it, get started and June/July is benefit election time at work when we setup medical, dental, FSA, and etc and I am going to have my direct deposit changed then, I will change it no matter what, even if it just goes to a ING savings account but, for now It sounds like I need to go read up on 403(b) s and start comparing the ones available to me.

I can handle that one step, thats not trying to swallow the elephant all at once. Any advice or tips in what to look for in a 403(b) would be appreciated, I am guessing very similar to anything else, common sense stuff like avoid fees, look at long term performance, etc.

Thanks Again.


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PostPosted: Sun Apr 22, 2007 9:11 am 

Joined: Thu Apr 12, 2007 6:40 pm
Posts: 31
Location: Milwaukee, WI
Hi Ziptar,

That's pretty much what I did--with each year I raise my percentage of contribution. For years my percentage was probably something like just 3%, but when I got my current job I bumped it to around 8%, and then 10%, and then 15%.... and now it's around 24% (and my pay hasn't really gone up that much). I've found that with each new contribution increase, my comfort level readjusts and I realize that I can do just a little bit more without depriving myself in other areas. Of course, it also helps that I've paid off most of my debt, with only mortgage now.... But the process has become something of a snowball effect. I'll probably keep my contributions at the current percentage while I take the step into setting up a Roth IRA. My "easy" experience with the 403b contributions has made it possible for me to grow my savings while finding out about additional opportunities. It sounds like you have some really good options, so start your account soon, and enjoy the process!


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PostPosted: Sun Apr 22, 2007 12:14 pm 

Joined: Sun Apr 15, 2007 9:14 pm
Posts: 9
I'm in the same boat as you, Ziptar, except much earlier on the timeline so my pension is worthless yet. Since my employer doesn't provide any match to our 403b, I setup and am maxing out a Roth IRA. I did this because it gives me the greatest flexibility for where the money is going and for the future. I went with a very low cost targeted retirement fund, which uses broad index funds, so I won't have to mess with the details of reallocation as time goes on. To me, setting things up to require as little thinking as possible is the best way to go. I'll just keep putting money in it and not have to worry about managing it.

A book like The Bogleheads' Guide to Investing or The Random Walk Guide to Investing will give you enough information to feel pretty good about your investment decisions, along with resources such as GRS. Try and pick them up at your library. You do seem to know the gist, though - index funds tend to be best in the long-run over actively managed funds, keep costs low since they eat away your returns, diversify, keep your risk level vs. timeline in mind as far as allocation. I find a good targeted retirement fund does it all better than I would do myself with my limited funds. With the minimums many investments require, it's difficult to get properly diversified among different asset categories when you're starting off, but owning a targeted retirement fund does that easily.

Good luck,

Andrew


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PostPosted: Sun Apr 22, 2007 6:23 pm 

Joined: Sun Apr 22, 2007 7:46 am
Posts: 3
Location: New Hampshire -> New Zealand
To keep your head from exploding, I recommend a 403(b) and index funds.

Why?

1. It's automatic through payroll deduction, so you have to do nothing except fill out a couple of pieces of easy paperwork to get started. You'll be paying yourself first, which feels good, and because of tax deferrals, the $1 you put in doesn't cost you $1 out of your take home pay.

2. You don't need to know anything about trading. An index fund is already diversified more than you could do one your own.

3. It's cheap. You can find low/no-fee and low expense ratio options out there, so you don't have to worry about starting your returns in a hole or having a lot of drag on your portfolio.

You need to start some place, and you need to start someplace that six months, or 12 months, or 18 months from now you're not going to throw up your arms and give up because it's too much of a hassle. (Let's face it, if it were easy, you'd have done it 15 years ago, right?!) You have to find an easy way to make this a habit, a part of your regular life style.

I'm lazy, not an expert, and don't want to spend a whole lot of time researching individual stocks or sweating over different strategies--so we could be brothers! ;) I started my 403(b) about 6 years ago and haven't looked back. I started by matching my pension plan contributions, then slowly added more and more every 6 months or so, so now I'm putting 2x as much into my 403(b) as into my pension program. By increasing my contributions slowly, I taught myself that I could live without that money that was 'missing' from each paycheck. And and as my salary went up, I would bump up my contribution--in effect deferring my raise but paying myself first by taking out money that I would never miss.

In case your wondering, after a lot of research, I went with Fidelity for my 403(b), mostly so that I could put my money into their Spartan US Equity Index, which tracks the S&P500 and has an ultra-low 0.1%. I started there and have branched out into some of their other funds.

Good luck to you! :)


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PostPosted: Sun Apr 22, 2007 9:20 pm 

Joined: Sat Apr 07, 2007 2:03 am
Posts: 872
Location: Taishan, Guangdong, China
The only thing I can say is "just do it". If the details overwhem you, well don't worry about them. Even poor investment choices are better than never investing. Random dartboard choices are probably as good as most money managers.


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PostPosted: Mon Apr 23, 2007 1:11 am 
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Location: England
I agree with the suggestion to put it into an index fund in your 403(b).

I have no idea whether that will be the best choice, but I think its not a bad choice, and your better off starting now, and altering your strategy later, than spending too long working out the "best" option.

Never forget that compound returns over time are your best friend, so the earlier you start doing something the better.

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PostPosted: Mon Apr 23, 2007 5:50 am 
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It sounds like you and I have similar retirement savings options at our disposal. Here's how I rank things...

(1) Required contributions (they're required, after all)
(2) Any contributions that come with matching funds (e.g., 401k with match)
(3) Roth IRA
(4) Unmatched, but tax-deductible contributions (such as your 403b or a 457b or an unmatched 401k)

(I ripped this list from my article on the topic http://www.fivecentnickel.com/2007/04/11/how-to-prioritize-your-retirement-accounts/)

Within types, I usually rank them based on the investments that are available.

I've written quite a bit about this sort of stuff over the past year or so as I've sorted out my options, so feel free to wade around in my archives. Look in the Taxes and Saving & Investing categories.

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PostPosted: Mon Apr 23, 2007 12:50 pm 

Joined: Mon Apr 16, 2007 1:59 pm
Posts: 6
I would lean towards putting most of your $ into the 403B -- but that's my gut, you should listen to yours.

The reason I would do that is for the tax advantage now. If you are also looking at 529s, that says there are kids in the picture, who hope to go to college. Financial Aid is determined by your family income. (Assuming a traditional-ish family.) If you can drop your taxable income by saving 15% of it in a 403B, I think that's a good thing.


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PostPosted: Tue Apr 24, 2007 3:35 am 

Joined: Mon Apr 16, 2007 2:23 am
Posts: 8
Location: Beyond The Sun.
Thanks for the tips everyone...

Yesterday I called the advisor line I had available and asked a million questions, they were great.

I picked up Bach's "Automatic Millionaire" from the library on the way home from work and started reading it last night. Wow, I was sorta on the right track and didn't know, that makes me feel better.

I found a great resource for 403b info http://www.403bwise.com/

Things are getting so much clearer... 403b is looking to be the way to go after all even without an employers contribution. The tax deferred is what I want thats basically ~25% free money to invest and it lowers my income tax, I GET IT NOW!. I also didn't realize that having a 403b would allow me to invest in plain old mutual funds and even targeted funds, and in TRP case at least, if I have automatic payroll deduction setup on my account they waive the Index fund maintenance fee, I think I need to confirm that, Which is great. Now I have to decide on a company and fund. I am looking at T. Rowe Price and Vanguard basically.

I'll probably just start with a life cycle fund, I could probably get a 1% better return "IF" I did things myself, and knew what I was doing but, right now I don't so I won't.

Looks like TRP might be the best choice, although my heart leans towards Vanguard, this article couldn't have come at a better time.
http://www.thesunsfinancialdiary.com/investing/a-look-at-lifecycle-funds-from-vanguard-fidelity-and-t-r-price/
I want to get a sense that the fund is consistent before I commit.

I need to read more and pick my company and fund and get started with that first 5%.. I am sure I'll have more questions,
thanks again everyone!!


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 Post subject: Apples to Apples and the "guts" of pulling the tri
PostPosted: Sun May 06, 2007 6:00 am 

Joined: Mon Apr 16, 2007 2:23 am
Posts: 8
Location: Beyond The Sun.
OK I am back... and this post is really long....

I am read, David Bachs' "Automatic Millionaire". Currently Reading his "Start Late Finish Rich". Also some holds came in at the library, I have "The Joy of Simple Living", "Your Money or your Life", and "Smart Couples Finish Rich" to read next also.

On the deciding on where to start putting my retirement money front, I have decided to put my 403b money in a Targeted fund. I used Morningstar and Yahoo Finance Fund tools to first get an Idea of which funds and they basically came back to the same three. T. Rowe Price's Retirement 2030, Vanguard's Target Retirement 2030, and Fidelity's Freedom 2030. (http://www.ziptar.com/funds/3_funds_morningstar_summary.JPG). I am still going to start with my original 5% this year but, David Bach has me thinking I need to suck it up and start with 10%, gotta crunch the numbers on that first.

(just a warning, some of the screen shots are pretty large...)

It seems like for me the hardest part of all of this is actually coming down to pulling a trigger on a single fund.

Morningstar's fund compare has me thinking Vanguard or T. Rowe Price (http://www.ziptar.com/funds/3_funds_morningstar.JPG) but, Fidelity's has been around longer.

Since the ages of the funds are so different It's really difficult to compare apples to apples so I had an Idea. Since these are all funds of funds, I went back and used the Morningstar compare to to pull a list of all of the funds each targeted fund currently holds to try and give a better idea of their returns over 5 years. Again more Morningstar screen shots.
http://www.ziptar.com/funds/troweprice_2030_holdings.JPG
http://www.ziptar.com/funds/vangaurd_2030_holdings.JPG
http://www.ziptar.com/funds/fidelity_2030_holdings.JPG

This actually turned out to be helpful because it gave a really clear picture of how all the funds were spread out, and Fidelity's seems like it is really widely diversified compared to the others, I don't know if that is because of the maturity of the fund though, the others could shift over time I suppose but, on the whole gave a really great picture of how the funds did within their individual asset allocations.

OK, so here is where I'd like the input from you folks that know this stuff better than I do, I am not asking for you to pick a fund for me but, I have "Investor's Block", I need input on how I should weigh the minute details in order to break a somewhat three way tie, and there may not be if that's the case than OK. I sort of feel like there is no more "logic" to apply at this point and I am more at "Gut Feeling" decision time.

Here is where I am at.

After much internet reading it's clear there is no easy answer in the "What's better long term, indexed vs. managed question", but I haven't read "Boggleheads" yet (down to 2nd in line on the library wait list) either so that may change the outcome entirely.

So Right now my gut says...

Fidelity Freedom 2030
- If I read the Prospectus right No Fees.
- .74% expense Ratio
- more mature well diversified fund with good overall performance.
- Holdings have had consistent and steady returns for the last 5 years.

T. Rowe Price Retirement 2030
- $10 Annual management Fee
- .76% expense ratio.
- A very aggressive allocation with 91% socks currently and it seems a more aggressive strategy for growth overall even after target date.
- Holdings have excellent returns for last 5 years.

Vanguard Target 2030
- $20 Annual management Fee, unless I register online AND accept electronic delivery of statements.
- .21% expense Ratio
- Indexed, a plus if you believe indexing out performs management
- A more conservative allocation in less individual funds, a little to conservative for the target date I feel.
- Holdings have had very good returns over the last 5 years.


So what it comes down to is my gut says this in the end..

Low expenses are great for Vanguard but, I feel the funds held aren't diversified enough and the strategy is a tad too conservative for my tastes. Fidelity is well spread out but, for the expense and returns it's just doesn't seems to come in 3rd of the three. T. Rowe Price is .5% more than Vanguard but, IF the performance over the life of the fund is similar to the last 3 (or 5 if you look at the holdings) the .5% is kind of a moot point. and While not hugely more aggressive than the other two, T. Rowe Price seems to fit better with what I think the allocation should look like for someone my age.

So the gut says put my money in T. Rowe Price's Retirement 2030... but, after all that, is that what this sort of life affecting decision comes down too?? Gut Instinct ???


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