OT: Beginning to Save for Retirement

[robcac26]

I'm looking to start saving for retirement but I need some help. My employer doesn't offer a 401k, although that will hopefully happen soon since our new GM mentioned that he wants to start providing benefits, but in the meantime I am looking to start saving on my own. People on here seem to know a lot more about investments than I do, so I thought maybe starting this thread would be helpful.

One of my coworkers is interning for Northwestern Mutual, so he set me up to meet with his mentor, who is trying to sell me life insurance as a long-term investment. After doing a lot of research, it doesn't seem like a very good investment. I eventually found out that he gets about 50% commission on the first year's premium with life insurance, but gets very little when his clients open IRAs, so I stopped meeting with him.

My bank (Unity) offers IRAs, but I haven't been able to meet with their investment guy yet. However, everything I read online seems to say that Vanguard is the best. Does anyone disagree and if so, why? Also some things I'm confused about before I go ahead with this:

(1) How do I calculate if a traditional or Roth IRA would be better tax-wise? I was able to determine that with a traditional IRA, I would owe about $800 less in taxes this year if I put the maximum amount into it, but how do I determine if those savings now are worth paying the taxes later?

(2) Do I need to know a lot about the stock market or are there experts that manage what I invest in?

(3) What sorts of fees should I expect?

Thanks for any help, and hopefully any info posted in here helps other as well.

 

[OntheBanks]

Invest in ETF's with an IRA (Traditional or Roth). Open up accounts with Fidelity or Vanguard. I prefer Fidelity because their web site is vastly superior. The only fees you'll pay are when you buy or sell. Keep your investments simple with ETFs that invest in the Total Market, S&P 500 and Nasdaq. Diversify with ETFs in Foreign and Emerging Markets.
Order this book - "Money - Master the Game" by Tony Robbins
and use some of the advice to keep it simple and reduce risk.
Buy only Term Life Insurance. Never buy it as an investment.
Also, if you don't take the money from a Traditional IRA you only have to withdraw by law
after you turn 71 1/2.

 

[Queztastic]

Agreed. Don't buy life insurance for investment purposes. My preference is Roth > traditional Ira. Sounds like you are just starting your career so you should be below the income limits.

 

[czxqa]

1. Don't waste your money on Tony Robbins' book. He's a motivational speaker not a broker.
2. Open an IRA with T Rowe or Vanguard and put your money in five no load funds. Pick a bond fund, an S&P fund, a growth fund, a small cap and an international or value fund. If you're not real comfortable picking funds, you can always go with a target date or lifecycle fund.
3. A 401k is always best because you get a better share class and you can roll it to a future employer's plan

 

[Mr_Twister]

Anecdotal note: Worked for many years at a large well-known technical organization in northern NJ. Among a team of engineers, almost all without exception went the standard route saving paycheck-to-paycheck contributing to the standard retirement vehicles. The one guy who actually retired way earlier than what was the norm (early to mid-60s) was a guy who eschewed all convention and owned two laundromats (one near a college, one near a huge apartment complex) as well as holding down his full-time engineering career. Retired in his mid-50s.

 

[RUJohnny99]

Age? Tax bracket? Marital status? kids?

 

[mikefla]

I retired at age 56(took an early retirement)
.....my retirement plan in the Fla University system is just fine
I gave NO thought to saving/investing for retirement
spent oodles of time travelling and at the beach
then again.....I paid my house off 30 years ago
and live within my means

The key is...dont have a mortgage,,,why pay for a house 3x?

 

[RU2007RSLN2010]

I agree with the above advice so far. I'm 30 and have no wife/kids so I haven't looked into life insurance and cannot comment.

If you are in the beginning stages of your career it is probably more advantageous to open a Roth IRA. You are presumably in a lower income tax bracket currently so the tax savings now with a traditional IRA will be more than offset by having your money grow tax free for the next 30+ years without any future tax consequences. I have clients who have a nice nest egg in a traditional IRA and have to explain to them that their million dollar nest egg is closer to three quarters that amount once Uncle Sam gets their cut.

I use TD Ameritrade for my IRA. I like it because I get to buy over 100 different ETFs commission free. 90% of my money is in Vanguard ETFs. The other 10% I use to buy individual stocks. I like Vanguard because their costs are some of the lowest in the industry. I'd recommend reading several books on investing/building a portfolio to educate yourself.

 

[LevaosLectures]

Get a state job. $$$$$

 

[SteveVA2]

Go to https://www.bogleheads.org/ and ask that question.

 

[PhDKnight]

Anecdotal note: Worked for many years at a large well-known technical organization in northern NJ. Among a team of engineers, almost all without exception went the standard route saving paycheck-to-paycheck contributing to the standard retirement vehicles. The one guy who actually retired way earlier than what was the norm (early to mid-60s) was a guy who eschewed all convention and owned two laundromats (one near a college, one near a huge apartment complex) as well as holding down his full-time engineering career. Retired in his mid-50s.

Save up 25k, find 4 other guys with 25k each, buy a 500k 4 or 6 plex with 10% down, put in 10k per door, hire a building manager and enjoy the positive monthly cash flow and equity .... then repeat.

 

[wheezer]

Ticks me off when these advisors push insurance as an investment, I am glad you examined it before jumping.

If you don't go into real estate, low cost mutual funds can usually get you to retirement, but you have to have a strong stomach along the way, sometimes..... Agree with those who suggest Roth

 

[rucoe89]

I'm looking to start saving for retirement but I need some help. My employer doesn't offer a 401k, although that will hopefully happen soon since our new GM mentioned that he wants to start providing benefits, but in the meantime I am looking to start saving on my own. People on here seem to know a lot more about investments than I do, so I thought maybe starting this thread would be helpful.

One of my coworkers is interning for Northwestern Mutual, so he set me up to meet with his mentor, who is trying to sell me life insurance as a long-term investment. After doing a lot of research, it doesn't seem like a very good investment. I eventually found out that he gets about 50% commission on the first year's premium with life insurance, but gets very little when his clients open IRAs, so I stopped meeting with him.

My bank (Unity) offers IRAs, but I haven't been able to meet with their investment guy yet. However, everything I read online seems to say that Vanguard is the best. Does anyone disagree and if so, why? Also some things I'm confused about before I go ahead with this:

(1) How do I calculate if a traditional or Roth IRA would be better tax-wise? I was able to determine that with a traditional IRA, I would owe about $800 less in taxes this year if I put the maximum amount into it, but how do I determine if those savings now are worth paying the taxes later?

(2) Do I need to know a lot about the stock market or are there experts that manage what I invest in?

(3) What sorts of fees should I expect?

Thanks for any help, and hopefully any info posted in here helps other as well.

Avoid the insurance guys at all costs. Connect with Vanguard or Fidelity mutual fund (index funds are best IMHO) and get going on your own. Also dollar cost average by investing portion of each paycheck monthly like you would a normal bill.

 

[RU205]

Save up 25k, find 4 other guys with 25k each, buy a 500k 4 or 6 plex with 10% down, put in 10k per door, hire a building manager and enjoy the positive monthly cash flow and equity .... then repeat.

Good advice. Just make sure it's with people you trust.

What other investments would you suggest? What about a car wash, or golf range?

 

[SteveVA2]

Don't buy individual stocks. Don't buy whole insurance. Avoid paying an advisor. Invest in low cost lifecycle funds.

 

[zubz]

Open a Roth. Put 70% into a US total market index fund. Should cost you .05% per year. Put 30% into Total foreign index fund. If your employer does a 401k, contribute up to the match then continue to fund the Roth. This is your basic starting point.

 

[Abro1975]

Always contribute to the max, if not more, than what your company will match in the 401k.

If you have/plan on having kids, Roth IRA's might be better than 529s, no penalty to transfer to for a college tuition from a Roth IRA.

Be aggressive when you are young.

 

[robcac26]

Thanks a lot for all the advice so far! Good to see popular opinion seems to be to avoid the life insurance. I wasn't sure if I was missing something obvious because in comparison to an IRA it doesn't seem to make sense.

Age? Tax bracket? Marital status? kids?

I'm 28 and single with no kids. I'm in the 25% tax bracket but the maximum contribution to a traditional IRA would knock me down to the 15% bracket, although my boss alluded to a likely raise this spring that would put me in the 25% bracket either way so I'm not sure how much I want to consider that being a factor.

 

[RUich]

Along with having some tax shelters and traditional IRA's, my wife and I made a habit of buying zero coupon Municipal bonds every month. Unlike a regular bond that pays dividends twice a year, a zero is a discounted bond which accrues in value over time until it pays off its face value. Depending on what interest rate it is paying and how long out you have it, you pay a percentage of its face value. These bonds are secure and are like financial time bombs for the future. If you are young enough, reinvest any matured bond into another larger zero. Look on line for them and any brokerage house handles them. Since we had no children, we felt secure in making our next move.
We both retired early (in our 40's) from our jobs and had a second career of running a B&B for fifteen years. Along with our pensions and the money from the B&B (which we sold), we lived a nice life. Even though we are now also on social security, we find ourselves with a lot more money than we ever expected.

 

[mildone]

I'm looking to start saving for retirement but I need some help. My employer doesn't offer a 401k, although that will hopefully happen soon since our new GM mentioned that he wants to start providing benefits, but in the meantime I am looking to start saving on my own. People on here seem to know a lot more about investments than I do, so I thought maybe starting this thread would be helpful.

One of my coworkers is interning for Northwestern Mutual, so he set me up to meet with his mentor, who is trying to sell me life insurance as a long-term investment. After doing a lot of research, it doesn't seem like a very good investment. I eventually found out that he gets about 50% commission on the first year's premium with life insurance, but gets very little when his clients open IRAs, so I stopped meeting with him.

My bank (Unity) offers IRAs, but I haven't been able to meet with their investment guy yet. However, everything I read online seems to say that Vanguard is the best. Does anyone disagree and if so, why? Also some things I'm confused about before I go ahead with this:

(1) How do I calculate if a traditional or Roth IRA would be better tax-wise? I was able to determine that with a traditional IRA, I would owe about $800 less in taxes this year if I put the maximum amount into it, but how do I determine if those savings now are worth paying the taxes later?

(2) Do I need to know a lot about the stock market or are there experts that manage what I invest in?

(3) What sorts of fees should I expect?

Thanks for any help, and hopefully any info posted in here helps other as well.

There are really two wildly different ways to approach the whole retirement thing. Saving money (lame) or making huge quantities while simultaneously living large (much better). And this later plan has the side benefit of often making it so you really don't have to worry about retirement.

Allow me to introduce you to the hookers and blow retirement approach. Sell hookers and blow and (a) you'll get rich quick with having to deal with the unpredictable vacillations of the stock market, (b) you can continually sample the product, for quality control purposes only, of course - AKA living large, and (c) you'll either be killed by the competition or you'll wind up in prison; either way retirement won't really be a concern.

You're welcome for this excellent, truly well thought out advice. :)

 

[RUJohnny99]

I'm 28 and single with no kids. I'm in the 25% tax bracket but the maximum contribution to a traditional IRA would knock me down to the 15% bracket, although my boss alluded to a likely raise this spring that would put me in the 25% bracket either way so I'm not sure how much I want to consider that being a factor.

Personally, I'm not a fan of the Roth, because I feel the government is going to change the rules and squeeze taxes out of them sometime in the next 60 years of your lifespan. I'd rather take a tax deduction today from a traditional IRA vs the promise of a tax free withdrawal in the future.

I also don't particularly like the Vanguard or other mutual fund option. I'd go with a broker (Scottrade or Schwab or whatever) that offers no load mutual funds. As the account grows, you're going to want to put some in individual stocks. You can't really do that with Vanguard, so you'd have to move the account. I don't think the benefit of saving 0.5% in fees each year ($5 per $1000 invested) warrants choosing Vanguard over others. You still have the flexibility to invest in mutual funds for no fee, but can branch out as you gain experience.

 

[Unionst]

Read, learn. Come to understand risk/return principles and the effect of interest rate levels on investments. Keep it simple utilizing low cost providers like Vanguard. Invest regularly. Live well within your means.

 

[Crazed_RU]

Along with having some tax shelters and traditional IRA's, my wife and I made a habit of buying zero coupon Municipal bonds every month. Unlike a regular bond that pays dividends twice a year, a zero is a discounted bond which accrues in value over time until it pays off its face value. Depending on what interest rate it is paying and how long out you have it, you pay a percentage of its face value. These bonds are secure and are like financial time bombs for the future. If you are young enough, reinvest any matured bond into another larger zero. Look on line for them and any brokerage house handles them. Since we had no children, we felt secure in making our next move.
We both retired early (in our 40's) from our jobs and had a second career of running a B&B for fifteen years. Along with our pensions and the money from the B&B (which we sold), we lived a nice life. Even though we are now also on social security, we find ourselves with a lot more money than we ever expected.

Here's the key to your financial security - no kids. I love my three kids like nothing else, but financially, they are like blood sucking vampires - (two teenagers, one 11 year-old). If the OP has no kids and doesn't plan on having kids, you almost have to be really inept to be unable to prepare financially for retirement.

 

[zubz]

Personally, I'm not a fan of the Roth, because I feel the government is going to change the rules and squeeze taxes out of them sometime in the next 60 years of your lifespan. I'd rather take a tax deduction today from a traditional IRA vs the promise of a tax free withdrawal in the future.

I also don't particularly like the Vanguard or other mutual fund option. I'd go with a broker (Scottrade or Schwab or whatever) that offers no load mutual funds. As the account grows, you're going to want to put some in individual stocks. You can't really do that with Vanguard, so you'd have to move the account. I don't think the benefit of saving 0.5% in fees each year ($5 per $1000 invested) warrants choosing Vanguard over others. You still have the flexibility to invest in mutual funds for no fee, but can branch out as you gain experience.

Fairly inaccurate advice. The no load mutual fund companies referenced several times in this thread that offer the lowest cost index funds both offer brokerage capabilities. So your statement is not true.

It is also very very unlikely that the government will make the Roth taxable. The fact that they are pushing the new myRA which is a Roth FROM the government furthers this point. Eventually they will most likely force RMDs from Roths but still would not be taxable. Also probably remove the stretch provision eventually so that this tax free money eventually moves to a taxable account sooner.

 

[kjb32812]

Thanks a lot for all the advice so far! Good to see popular opinion seems to be to avoid the life insurance. I wasn't sure if I was missing something obvious because in comparison to an IRA it doesn't seem to make sense.


I'm 28 and single with no kids. I'm in the 25% tax bracket but the maximum contribution to a traditional IRA would knock me down to the 15% bracket, although my boss alluded to a likely raise this spring that would put me in the 25% bracket either way so I'm not sure how much I want to consider that being a factor.

Good Lord is there some absolutely horrible advice ITT. Don't have a mortgage when the guy is 28, interest rates are the lowest in history and he can write off the interest?

OP, based on the limited information you have provided, I would run a Roth vs. Traditional IRA calculator to see which one makes more sense. Normally I would say to contribute the amount to a Traditional IRA that would get you out of the 25% marginal bracket and then the rest to a Roth but it sounds like you are just getting started so that may not be the best idea because of cost (depending on how much you are planning to contribute over the years). Look for one of the online calculators and assume your tax bracket to be 25% both now and in retirement just for ease.

You don't need any bonds at your age unless you are considering high yield. Just pick an equity investment, let it alone and build around it as you continue to save.

 

[mildone]

OP. This thread will continue to grow. And with it's growth you will observe much contentiousness and disagreement about how to save money. I know you probably didn't think much of my alternate plan, but by the time this thread winds down, you will be starting to see things my way. You'll see.

 

[Crimedog2]

Some good advice in this thread . Has anyone here not saved well for retirement or had some retirement plans go bad ?

 

[robcac26]

OP. This thread will continue to grow. And with it's growth you will observe much contentiousness and disagreement about how to save money. I know you probably didn't think much of my alternate plan, but by the time this thread winds down, you will be starting to see things my way. You'll see.

Haha. Your idea seems sensible, I'll give Vanguard a call on Monday morning and ask if they have a hookers and blow fund I can invest in.

 

[Abro1975]

We spent all our retirement money by the time we were 63, so my wife (61) now dances at a Senior Living place in Riverdale NJ. She looks like Cheryl Tiegs a little bit, so the old dudes thinks she's hot ! Come 's home w like $500 night ! At Outback we can get 2 for 1 dinner from 4-6 pm and then come home and have about 4 Manhattens and fall asleep by 9. Enough left over for 2 RU football and Wrestling Season tickets. Golden years are Awesome !

 

[phs73rc77gsm83]

Personally, I'm not a fan of the Roth, because I feel the government is going to change the rules and squeeze taxes out of them sometime in the next 60 years of your lifespan. I'd rather take a tax deduction today from a traditional IRA vs the promise of a tax free withdrawal in the future.

I also don't particularly like the Vanguard or other mutual fund option. I'd go with a broker (Scottrade or Schwab or whatever) that offers no load mutual funds. As the account grows, you're going to want to put some in individual stocks. You can't really do that with Vanguard, so you'd have to move the account. I don't think the benefit of saving 0.5% in fees each year ($5 per $1000 invested) warrants choosing Vanguard over others. You still have the flexibility to invest in mutual funds for no fee, but can branch out as you gain experience.

Totally not true you can't have a brokerage account with Vanguard. Why would you post that?

 

[RUJohnny99]

It is also very very unlikely that the government will make the Roth taxable. The fact that they are pushing the new myRA which is a Roth FROM the government furthers this point. Eventually they will most likely force RMDs from Roths but still would not be taxable. Also probably remove the stretch provision eventually so that this tax free money eventually moves to a taxable account sooner.

For its first 45 or so years, social security wasn't taxable either. The argument was it was after tax money going to FICA, so the benefit was tax free.

We are about 20 years into the Roth. In the beginning (I forget what year - 96 maybe?), they allowed conversions with the tax spread over 4 years. At the brokerage I was working at, I saw a lot of people in their 40s converting 6 figure rollovers to Roths. These Roths are likely now 7 figures and the people are nearing retirement. You believe that the next 5-10 presidents/congresses are going to allow these people to give themselves millions of dollars of tax free income. I don't.

That doesn't even consider a future government switching to a VAT or national sales tax, which makes the benefits of the Roth immediately obsolete.

 

[Tango Two]

I'm looking to start saving for retirement but I need some help. My employer doesn't offer a 401k, although that will hopefully happen soon since our new GM mentioned that he wants to start providing benefits, but in the meantime I am looking to start saving on my own. People on here seem to know a lot more about investments than I do, so I thought maybe starting this thread would be helpful.

One of my coworkers is interning for Northwestern Mutual, so he set me up to meet with his mentor, who is trying to sell me life insurance as a long-term investment. After doing a lot of research, it doesn't seem like a very good investment. I eventually found out that he gets about 50% commission on the first year's premium with life insurance, but gets very little when his clients open IRAs, so I stopped meeting with him.

My bank (Unity) offers IRAs, but I haven't been able to meet with their investment guy yet. However, everything I read online seems to say that Vanguard is the best. Does anyone disagree and if so, why? Also some things I'm confused about before I go ahead with this:

(1) How do I calculate if a traditional or Roth IRA would be better tax-wise? I was able to determine that with a traditional IRA, I would owe about $800 less in taxes this year if I put the maximum amount into it, but how do I determine if those savings now are worth paying the taxes later?

(2) Do I need to know a lot about the stock market or are there experts that manage what I invest in?

(3) What sorts of fees should I expect?

Thanks for any help, and hopefully any info posted in here helps other as well.

Consult a professional

 

[mildone]

Consult a professional

Funny. I'm given that advice on a near daily basis, albeit for reasons entirely unrelated to the topic at hand.

 

[gringo]

1) Save as much as you can
2) Use low fee investments.

The only way to know if a Roth or Regular IRA is better is if you know your date of death and future tax rates ;) so do both.

Schwab has a managed ETF portfolio called Schwab Intelligent Portfolios. There are no management fees, service fees or commissions. Minimum to start is $5,000

 

[zubz]

For its first 45 or so years, social security wasn't taxable either. The argument was it was after tax money going to FICA, so the benefit was tax free.

We are about 20 years into the Roth. In the beginning (I forget what year - 96 maybe?), they allowed conversions with the tax spread over 4 years. At the brokerage I was working at, I saw a lot of people in their 40s converting 6 figure rollovers to Roths. These Roths are likely now 7 figures and the people are nearing retirement. You believe that the next 5-10 presidents/congresses are going to allow these people to give themselves millions of dollars of tax free income. I don't.

That doesn't even consider a future government switching to a VAT or national sales tax, which makes the benefits of the Roth immediately obsolete.

I hear where you are coming from. I think the government is doing well by collecting these taxes now through Roth conversions. It is still quite common for clients to do conversions. That would immediately stop if Roth distributions became taxable. I personally think for someone just getting started it is still a great vehicle. Obviously no one can predict the future why is why I do about 3/4 of my 401k pretax and 1/4 Roth.

 

[Raritan83]

Schwab has a managed ETF portfolio called Schwab Intelligent Portfolios. There are no management fees, service fees or commissions. Minimum to start is $5,000

No fees minus the 6% cash allocation (drag) and some high (relatively speaking) secondary ETF expense ratios if using tax harvesting. Read some of the studies on the Schwab Intelligent Portfolio. Just the cash alone essentially puts you at a .25% management fee not including the ETF fees.

 

[RUTGERZ_R00LZ]

Thanks a lot for all the advice so far! Good to see popular opinion seems to be to avoid the life insurance. I wasn't sure if I was missing something obvious because in comparison to an IRA it doesn't seem to make sense.


I'm 28 and single with no kids. I'm in the 25% tax bracket but the maximum contribution to a traditional IRA would knock me down to the 15% bracket, although my boss alluded to a likely raise this spring that would put me in the 25% bracket either way so I'm not sure how much I want to consider that being a factor.

Marry rich.

 

[kjb32812]

Why would the government need to change the taxation of Roth IRAs when they have the baby boomers RMDs and subsequent IRD? There has even been talk that they try to eliminate the stretch provision and also require RMDs on Roth IRAs.

 

[DanoRU]

I was watching Warren Buffet on a CNBC interview a few years back. His advice was if you really don't know what you're doing with investing, you should; 1) max out your 401K contribution so you get the maximum employer match; 2) max out your IRA contribution - he said to go with a Roth. The money should all be put into an S&P 500 Index Fund - I believe he said Vanguard but it doesn't really matter which brokerage firm you use if you invest in the index funds. I'm taking his advice and putting my money in the Vanguard index fund.

 

[gringo]

No fees minus the 6% cash allocation (drag) and some high (relatively speaking) secondary ETF expense ratios if using tax harvesting. Read some of the studies on the Schwab Intelligent Portfolio. Just the cash alone essentially puts you at a .25% management fee not including the ETF fees.

I appreciate your comments but have to disagree. A certain percentage of cash should be part of any portfolio. It is the only thing that does not decrease in value. Might be a drag when things are going up but it is an anchor when things are going down. Basic portfolio theory. Unlike mutual funds, ETF's do not need to hold cash for redemptions

The highest average fee is for the Agressive portfolio and works out to 0.25 percent. I don't understand your comment about tax harvesting - why is this an issue in an IRA?

For someone who is investing for the 1st time and has $5000 to put into an IRA it seems like a good choice - low cost investments that automatically rebalance. If you do not like my suggestion what is your alternative?