Retirement Savings: Just get the ball rolling ASAP, and keep at it for 5 years

[NoCreativity]

Say you woke up tomorrow and got a notice from the bank that some rich distant relative paid off your house, so you owned it free and clear.

Would you go straight to the bank to take out a 100% mortgage on it and put all that money in the stock market?

No, but I would take that mortgage payment and start putting it into the market.

 

[dullard]

My problem is I always feel like I'm going to need more cash.

Right now we have ~$60k in liquid assets, but there is always a demon inside telling me we need more on-hand.

My wife wants a new car, better save so we keep the same amount of cash on-hand.
We want to have a kid soon, we're going to have a lot of expenses to fill the baby room.
We want to have a kid soon, better start saving for his/her college-fund.

It's a double-edged sword, because while having liquid assets are useful at times - having cash just sitting in a shit interest bank account not accruing any real interest (Retirement accounts) is not useful.

Go talk to a banker. Not the teller at the front of the long line. But a real banker (the people sitting in the offices or cubicles scattered around the bank). Seriously, go do it this week.

Set up a plan where you are pre-approved for a loan in an emergency. Use your investments as collateral. Note, this isn't selling your investments at a bad time (such as selling when the market is down or having a big tax bill when you sell to pay off your emergency). This is keeping your investments invested and getting a loan from the bank in the off chance that you have a big emergency. Bankers love this setup: they are potentially loaning money to someone with $60k+ saved (i.e. you are very unlikely to default) and the interest rates are therefore near zero.

In the worst case scenario, you have to take out that loan and pay a few hundred dollars of interest to the bank. Compare that to the $7000 you just lost by not having that $60,000 invested in a S&P tracking fund last year. It is time to have your cake AND eat it.

Very few emergencies are more than $3000 anyways. A new furnace: $2000ish, a new heat pump: $3000ish, a new engine or transmission: $2000ish, a big medical bill: $3000ish (or you have the wrong insurance). The only real reason to have more than about $3000 in emergency funds is for a lost job. And you already have unemployment insurance that covers you in that situation. You are just saving way too much cash for virtually no justifiable reason.

The only justifiable reason to have that much cash is that you have a specific plan for that $60k, such as buying a big ticket item or waiting for prices to go down for a specific investment (and even then that is often a bad reason because timing the market is a losing game).

 

[Tweak155]

Money, in general, is not a good motivator. The OP will not apply to everyone, as rarely any advice does, although some definitely covers more people than others.

That said, I find my greatest way of saving $$ is to find a good way to judge the value of something and talk your way OUT of buying something vs INTO buying something. Anyone I know personally that has a lot of debt or they don't have much extra cash laying around is because they can't control their spending.

If you talk yourself out of buying things, you generally only end up buying the things you NEED, and the things you TRULY want. In my case, I don't need / want a whole lot I guess!

 

[slashbinslashbash]

Nope, but I'd take the mortgage amount I was previously paying and invest it.

Yes, of course. Getting rid of debt obligations frees up your cash flow for other/better things. All things considered, given the amount I owe on my house I will take a guaranteed 3%-4% return over the *possible* 7%-8% return during the 2-3 year period required to pay it off.

 

[pontifex]

I have a retirement plan through my company, not Roth IRA.

I started when I got my first real full time job. I think I was 20 then. I'm 35 now and have gone through a few companies since then, rolling over my previous contributions into my new plans as I went along.

Between mine and my employer's contributions its almost $500 a month. I'm just under $40,000 in my account now.

 

[Tweak155]

I have a retirement plan through my company, not Roth IRA.

I started when I got my first real full time job. I think I was 20 then. I'm 35 now and have gone through a few companies since then, rolling over my previous contributions into my new plans as I went along.

Between mine and my employer's contributions its almost $500 a month. I'm just under $40,000 in my account now.

So this is a 401k?

 

[pontifex]

So this is a 401k?

yes

 

[jlee]

Yes, of course. Getting rid of debt obligations frees up your cash flow for other/better things. All things considered, given the amount I owe on my house I will take a guaranteed 3%-4% return over the *possible* 7%-8% return during the 2-3 year period required to pay it off.

If you are interested in market returns over a 2-3 year period, stocks are not the way to go anyway.

 

[monkeydelmagico]

Yes, of course. Getting rid of debt obligations frees up your cash flow for other/better things. All things considered, given the amount I owe on my house I will take a guaranteed 3%-4% return over the *possible* 7%-8% return during the 2-3 year period required to pay it off.

Only if it does not impact employer 401k match funds contribution. Then you are talking much higher % return on investment.

 

[Printer Bandit]

50% of people don't even make it to retirement age.


Roth, 401k, are all for losers that all have pie in the sky dreams.

 

[s0me0nesmind1]

I have a retirement plan through my company, not Roth IRA.

I started when I got my first real full time job. I think I was 20 then. I'm 35 now and have gone through a few companies since then, rolling over my previous contributions into my new plans as I went along.

Between mine and my employer's contributions its almost $500 a month. I'm just under $40,000 in my account now.

You realize that IRA's are something you take-up under your own doing usually, right?

Hence, individual retirement account.

Hence, you can (and should) do both - an IRA and a 401k. Also, your account seems ridiculously low for your age. My wife and I have that amount in each of our accounts and I'm 26. I would highly recommend higher contributions if you can afford it.

 

[s0me0nesmind1]

50% of people don't even make it to retirement age.


Roth, 401k, are all for losers that all have pie in the sky dreams.

I would agree if you are fat and unhealthy.... Your 50% figure has some... uhhh... obvious metrics to it

 

[s0me0nesmind1]

Go talk to a banker. Not the teller at the front of the long line. But a real banker (the people sitting in the offices or cubicles scattered around the bank). Seriously, go do it this week.

Set up a plan where you are pre-approved for a loan in an emergency. Use your investments as collateral. Note, this isn't selling your investments at a bad time (such as selling when the market is down or having a big tax bill when you sell to pay off your emergency). This is keeping your investments invested and getting a loan from the bank in the off chance that you have a big emergency. Bankers love this setup: they are potentially loaning money to someone with $60k+ saved (i.e. you are very unlikely to default) and the interest rates are therefore near zero.

In the worst case scenario, you have to take out that loan and pay a few hundred dollars of interest to the bank. Compare that to the $7000 you just lost by not having that $60,000 invested in a S&P tracking fund last year. It is time to have your cake AND eat it.

Very few emergencies are more than $3000 anyways. A new furnace: $2000ish, a new heat pump: $3000ish, a new engine or transmission: $2000ish, a big medical bill: $3000ish (or you have the wrong insurance). The only real reason to have more than about $3000 in emergency funds is for a lost job. And you already have unemployment insurance that covers you in that situation. You are just saving way too much cash for virtually no justifiable reason.

The only justifiable reason to have that much cash is that you have a specific plan for that $60k, such as buying a big ticket item or waiting for prices to go down for a specific investment (and even then that is often a bad reason because timing the market is a losing game).

Thanks for the advice... I've been meaning to do something with it all, but like I said - we have some events coming up and our jobs have been hella busy.

How much do you keep on-hand usually?

 

[dullard]

Thanks for the advice... I've been meaning to do something with it all, but like I said - we have some events coming up and our jobs have been hella busy.

How much do you keep on-hand usually?

Now I sheepishly back out for not taking my own advice.

I keep $4500 on hand for day-to-day expenses. I ensure that at least once a month the checking account reaches between $1000 and $1100 after all monthly bills are paid (the rest goes to investments). I also have a savings account with a $3500 minimum to avoid fees. I use the savings simply as an emergency fund for thngs that can and do go wrong (such as replacing burnt siding when our neighbor's house caught on fire). Total $4500 cash. That is all that I want to keep in cash.

But, I have a wife. She demands and keeps $15,000 in cash at all times in her own back account. We got married right near the market bottom. If I had my way, that would be over $30,000 right now. We lost $15k just for this "feel good" state that she wants to maintain. In the grand scheme of things, it isn't a lot (it just means we need to work a couple months longer before retirement). But it is still lost money for no real good reason.

 

[s0me0nesmind1]

Now I sheepishly back out for not taking my own advice.

I keep $4500 on hand for day-to-day expenses. I ensure that at least once a month the checking account reaches between $1000 and $1100 after all monthly bills are paid (the rest goes to investments). I also have a savings account with a $3500 minimum to avoid fees. I use the savings simply as an emergency fund for thngs that can and do go wrong (such as replacing burnt siding when our neighbor's house caught on fire). Total $4500 cash. That is all that I want to keep in cash.

But, I have a wife. She demands and keeps $15,000 in cash at all times in her own back account. We got married right near the market bottom. If I had my way, that would be over $30,000 right now. We lost $15k just for this "feel good" state that she wants to maintain. In the grand scheme of things, it isn't a lot (it just means we need to work a couple months longer before retirement). But it is still lost money for no real good reason.

So what happens when you need a down payment for your next home? (Otherwise having to get a FIA loan and undertake MIP). I have my answer, but I'm curious on yours and if it matches mine.

 

[lupi]

Happy that we both have pensions from our jobs. Think the generation after will really start to have horror stories as those are all but gone.

 

[purbeast0]

So what happens when you need a down payment for your next home? (Otherwise having to get a FIA loan and undertake MIP). I have my answer, but I'm curious on yours and if it matches mine.

i would guess like most people, it would be the equity from his current house.

 

[Brovane]

At first it sucks. You can only contribute like $5500 a year into your Roth IRA. Assuming you can afford to do that, you do it and it's like... hmm. This isn't much money. Like not much more than I keep around in my checking account or whatever. So I can afford like 10 shares of Apple. Whoop.

But once you hit around $20k in your account (~4 years of max Roth IRA contributions).... you're like holy shit, son, this is some real money here. It becomes fun and self-motivating. You want to keep adding to that pile because it's already a big pile and it's awesome to have that much money in one place.

I think this idea will scale up or down with your income. Maybe you make 4x more than I do so you don't qualify for a Roth but you can contribute $20k a year to some other kind of retirement account. Just do it. And keep at it. Once you hit $80k-$100k in your account you will start to think of it more highly.

TL;DR: Just put the maximum you can into your retirement savings for 4-5 years, and at that point it will be a large enough amount of money (relative to your normal everyday accounts) that it will be fun and addicting to keep putting money into the account.

I thought this being ATOT that everybody spends their extra money on hookers and blow?

 

[s0me0nesmind1]

i would guess like most people, it would be the equity from his current house.

Presume you can't sell your current house - the market sucks - or you simply found a home you want, if you don't buy it up quickly it will be gone. You want to move now because your current situation sucks.

Or

Like most people here are advising, you have little equity. The first 5 years of minimum payments won't even pay closing costs, let alone realtor fee's.

 

[jlee]

Presume you can't sell your current house - the market sucks - or you simply found a home you want, if you don't buy it up quickly it will be gone. You want to move now because your current situation sucks.

Or

Like most people here are advising, you have little equity. The first 5 years of minimum payments won't even pay closing costs, let alone realtor fee's.

Then you'd be sitting on six figures+ because you didn't pay your house off, amirite?

What happens if the market sucks and your house is paid off? Sell it at a 30% loss?

 

[SketchMaster]

That said, I find my greatest way of saving $$ is to find a good way to judge the value of something and talk your way OUT of buying something vs INTO buying something. Anyone I know personally that has a lot of debt or they don't have much extra cash laying around is because they can't control their spending.

If you talk yourself out of buying things, you generally only end up buying the things you NEED, and the things you TRULY want. In my case, I don't need / want a whole lot I guess!

I used this kind of mindset to help dig myself out a debt a few years back. Whenever I saw something I wanted and thought "I just got paid, so I can afford it!" I would quickly say "No you can't, put it down...". Then I would pull out my phone, and take the amount I was about to spend and threw it at a CC bill.

A couple months of that got rid of a lot of needless debt and spending habits.

 

[brianmanahan]

you should also visit www.bogleheads.org

Its amazing how much money they have in their retirement accounts when people ask to review their investments. Amazing!

yep, in the net worth poll, i think the average millionaire mark is hit at age 37, and the 50 year olds are worth 3$ million

of course, this is the internet, where nobody lies ()

 

[pontifex]

You realize that IRA's are something you take-up under your own doing usually, right?

Hence, individual retirement account.

Hence, you can (and should) do both - an IRA and a 401k. Also, your account seems ridiculously low for your age. My wife and I have that amount in each of our accounts and I'm 26. I would highly recommend higher contributions if you can afford it.

nope, my financial knowledge is very little.

I'm willing to bet you make a lot more than me too.

I'm already putting in 10%. I can't afford more.

 

[brianmanahan]

and this is good advice OP

with an %8 return, 1$ invested when you are 25 would be the equivalent of 10$ when you are 55.

 

[maddogchen]

yep, in the net worth poll, i think the average millionaire mark is hit at age 37, and the 50 year olds are worth 3$ million

of course, this is the internet, where nobody lies ()

what? that was my goal...why do you dash my dreams....WHY????