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 Post subject: Where to start
PostPosted: Thu Jan 31, 2013 12:34 pm 

Joined: Thu Jan 31, 2013 12:14 pm
Posts: 4
Hi, I'm fairly new to investing - didn't pay much attention to it in my first career because I had a pension plan, now in my second career I'm trying to make sure I and my family are ok when I really retire. I searched the board for newbie and dummies first, didn't get too many hits, so if there's a "how to do this" post or thread somewhere else, please point it out to me.

As my moniker suggests, I am retired Air Force, and now receiving a pension. As a military member, I was poor for many years, then went through a divorce, so I left with pretty much my pension as my only assets upon retirement. I also own a rental house in another state - breaking even on cash flow right now: rent - management fees - mortgage = -$20. So, I'm not making income today on the house, but it will be paid off when I'm 70, and I'm trying to accelerate the mortgage so it's paid off in conjunction with real retirement. Right now, if I add all of my military pension benefits, my expected SS at 77, my expected rental income after the home is paid off and what I won't be paying in child support at that time compared to what I make in pre tax income now, I'm at about 77% - meaning my adjusted income after retirement is 77% of my current middle aged income. So, I'm not expecting to be destitute, but I do have to be careful, and of course not carry a buttload of debt into retirement. And naturally, major changes to SS like severe means testing will wreck this plan.

So, what I need to figure out is how to spend the next 22 years investing.

My new employer provides me with 401k and profit sharing directly deposited into my 401k (whether I contribute or not I get 5-6% a year deposited annually.) I started contributing only 6 months ago, and didn't put much thought into it - I'd always heard index funds were the way to go long term, so I just stuck in into SSgA's S&P 500 fund. I am now about to get my first profit sharing contribution, which will dwarf my own contributions already, so now I want to be smarter with this money - I chose the job I have because I'd rather get paid less now and have this held in savings than get some money that I will probably blow and/or have to share with the ex-wife.

So, longwinded background over. How does one start learning about this? I googled some of the other choices in my 401K and don't really understand peoples' comments. For example, I looked at BlackRock Lifepath 2035. The pdf I downloaded says its annual operating expense is .01% = $0.10 per $1000 invested. That seems really low to me, but there's another post on this board that says Lifepath is super expensive? Where's the best place to get educated on this?


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 Post subject: Re: Where to start
PostPosted: Thu Jan 31, 2013 1:09 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 818
Is there a QDRO on your military pension? Any lawyer working on behalf of your ex would have asked for that, and as you know, you would have had to lay down and take it. If there isn't, you are lucky.

Spending 77% of your income in retirement seems high. It is better to say, my bare bones budget is $xx,xxx. I'll live comfortably at bare bones +$yy,yyy and I'll have a really good life at bare bones + $yy,yyy +$zz,zzz. The problem with the percentage is, if you're fortunate enough to get raises beyond inflation, an assumption is already built in that you are increasing your lifestyle. Which may, or may not be true.

77% seems like a lot b/c A) you will most definitely pay less in taxes, b) there is a cost to going into work everyday (vehicle, clothes etc) and C) you'll have more time to do things, so you can mow your lawn, fix the plumbing leak, make dinner etc.

The institutional version of the Liferock lifepath 2035 has a .85% fee. http://quote.morningstar.com/fund/f.aspx?t=LPJIX

If you want help on what to invest in, you'll have to post your investment options, age, % of retirement income covered by your military pension, goals, etc. In essence, more specifics.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Where to start
PostPosted: Thu Jan 31, 2013 1:53 pm 

Joined: Thu Jan 31, 2013 12:14 pm
Posts: 4
My figures account for her share - I'd be feeling a lot better if I didn't have to share.

That's one thing I was trying to figure out - is 77% probably enough? I think yes, but I don't know.

Ok, I'm about to be 45, and my share of all my military pension benefits is about 40% of my expected retirement income. My rental house is another 11%, and my "predicted" SS is another 27%. The rest is what I won't be paying in child support expenses (28 months and counting, plus whatever time they spongs me for college :D ).

My goal - not be frantic every month wondering how I'm gonna pay bills. Be able to take the grandkids out to dinner/ice cream/buy a toy every time they come over. Pay my Medicare supplement premiums, etc. Protect against collapse or means testing of Social Security.

I recalculated and I think it's more accurate to say I'll be getting about 74% of my current income, adjusting for c/s.
(pension+rental income+ss) / ( salary + pension - c/s) = 74%.

If I don't carry gobs of debt into retirement, is 74% enough for general planning?

If I stay with my current company, or invest my own income at the same annual rate as they're depositing for profit sharing, it looks lie I can have another $400,000-500,000 on top of this projected income. That seems to work out to $2500 a month more for 25 years, which takes me to 95+% of current income.


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 Post subject: Re: Where to start
PostPosted: Thu Jan 31, 2013 2:18 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 818
77% is probably too much. What you spend is important for a retirement budget. Not what you currently earn.

as most people doing retirement planning, you probably have no idea what your actual expenses are. You know how much you make, what you net, and generally a $ amount of what you spend. But, you don't know what your budget will be. You must track every penny.

here's the deal, you're fortunate to have a solid pension as your retirement foundation. The question is, does that cover your basic expenses? If it does, you can take risks with your money that someone sans a pension would take.

1) start tracking expenses
2) develop a risk profile for your investment money.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Where to start
PostPosted: Thu Jan 31, 2013 2:37 pm 

Joined: Thu Jan 31, 2013 12:14 pm
Posts: 4
Ok - step 1, expenses. You're right, I don't currently know what I need, nor do I have a good prediction for what I will need

When you say 77% is too much, do you mean "more than enough" or "too much, and you'll have extra planning to take care of taxes"?

So, maybe I wasted time talking about where I'm at - the real question is how do I learn what to do with the my new investments. In a couple weeks my company is gonna dump about a half a months's salary into my 401k - what do I do with it? Should I leave it in S&P index, is now the time to start putting some in bonds? I don't really want a specific answer, although they'd be welcome. Where do I start learning about the different vehicles so when I see someone else's comments they make sense? Is 1% a year fees good/bad/average?


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 Post subject: Re: Where to start
PostPosted: Thu Jan 31, 2013 3:34 pm 

Joined: Mon Feb 04, 2008 7:35 am
Posts: 1148
Location: Maryland
Look under the tips/tricks/pointers section. There is a ton of stuff there on retirement, Roth IRAs, etc..It's a start. There is also a thread somewhere on best personal finance books. That should keep you busy for a while. Vintek also posted multiple times about Transparent Financing. Do a search...you'll find what you're looking for, and then you can come back and ask about different things.

In the meantime, put your upcoming retirement $ somewhere. You can always change it once you figure out exactly where you want it. It's your money.


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 Post subject: Re: Where to start
PostPosted: Thu Jan 31, 2013 3:47 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 818
airforceteacher wrote:
Ok - step 1, expenses. You're right, I don't currently know what I need, nor do I have a good prediction for what I will need

When you say 77% is too much, do you mean "more than enough" or "too much, and you'll have extra planning to take care of taxes"?

So, maybe I wasted time talking about where I'm at - the real question is how do I learn what to do with the my new investments. In a couple weeks my company is gonna dump about a half a months's salary into my 401k - what do I do with it? Should I leave it in S&P index, is now the time to start putting some in bonds? I don't really want a specific answer, although they'd be welcome. Where do I start learning about the different vehicles so when I see someone else's comments they make sense? Is 1% a year fees good/bad/average?


You'll most likely spend less than 70 something %. Other years may vary.

You can check out the Boglehead's books, (investing and retirement). they are both excellent and will walk you through what you need to know.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Where to start
PostPosted: Thu Jan 31, 2013 4:06 pm 

Joined: Thu Jan 31, 2013 12:14 pm
Posts: 4
thanks! I actually found the Boglehead website on my searches too.


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