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

[brianmanahan]

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.

it is not ridiculously low in real life terms, just in ATOT-everyone-is-a-millionaire-by-40 terms

 

[rcpratt]

it is not ridiculously low in real life terms, just in ATOT-everyone-is-a-millionaire-by-40 terms

$40k at 35 is pretty brutal. Even if he only made $30k/year and contributed 10% he would be above that. And that assumes no investment growth...while the market is up about 40% over the past 15 years.

 

[x26]

Just encouraging the younger members to get started today, and to stick with it for ~5 years, at which point it should have its own momentum.

Great Post--5 Stars!!

 

[dullard]

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 said above, keeping $60k for with no purpose other than "feeling good" is not a wise move. Keeping $60k for a downpayment can very well be a wise move.

For me, I can sell the house and use the proceeds for a downpayment on the next house. There is always the difficulty of trying to have two homes at once if the old one doesn't sell, but apartments and/or bridge loans work for that.

 

[pontifex]

$40k at 35 is pretty brutal. Even if he only made $30k/year and contributed 10% he would be above that. And that assumes no investment growth...while the market is up about 40% over the past 15 years.

Sorry im not a financial genius like you or make $250k a year.
I didn't contribute 10% from the beginning, only the last 5 years maybe. I remember at 1 job i did 6%. I currently make about 40k. My first job was like 20k at start.

 

[brianmanahan]

I didn't contribute 10% from the beginning, only the last 5 years maybe. I remember at 1 job i did 6%. I currently make about 40k. My first job was like 20k at start.

things i've seen say 1 year of salary at 35 is a good goal

then 3x at 45, 5x at 55, and 8x at retirement age

http://business.time.com/2012/09/21/what-you-should-save-by-35-45-and-55-to-be-on-target/

 

[Jumpem]

I said above, keeping $60k for with no purpose other than "feeling good" is not a wise move. Keeping $60k for a downpayment can very well be a wise move.

For me, I can sell the house and use the proceeds for a downpayment on the next house. There is always the difficulty of trying to have two homes at once if the old one doesn't sell, but apartments and/or bridge loans work for that.

Most financial advisors do seem to advise six months to a year of expenses in cash.

 

[Genx87]

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.

Please tell me you dont have 60K in a bank account losing 3% a year to inflation.

 

[Genx87]

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.

I used to think like this but remember you get to deduct interest payments on your income taxes. It makes more sense unless you mortgage rate is something like 6+ % to not pay it off early and take that cash flow in invest it.

 

[Jeff7]

things i've seen say 1 year of salary at 35 is a good goal

then 3x at 45, 5x at 55, and 8x at retirement age

http://business.time.com/2012/09/21/what-you-should-save-by-35-45-and-55-to-be-on-target/

Fidelity assumes:
- You begin saving in a workplace retirement plan, such as a 401(k), at age 25. You save continuously and without interruption until age 67.
- You start by making an annual salary contribution equal to 6% of pay, and raise the figure by one percentage point each year until you are saving 12% of pay.

That'd be good. Plenty of people could use that early start. Me included. :\

- Your employer matches you at 50 cents on the dollar up to 6% of pay and your portfolio grows 5.5% a year.

Sounds generous. We only made it up to 6% recently because of numerous things done to substantially increase the company's profitability. The investment options are darned expensive though.

I'm glad that Fidelity at least went with something more reasonable for the return rate in terms of a long-term average. At work, there was a campaign to push for more 401k participation, and things were posted saying that you could have a million dollars by the time you retire by only putting some small percentage of income into a 401k plan.
Based on what I figured to be a normal wage for many of the younger workers there, and assuming a start at age 18, that'd require a 10-11% annual return, or else they'd be working into their early 80s assuming a 7% annual return.

- Social Security is factored in.
- Your income grows 1.5 percentage points faster than inflation each year.

Regular raises? Raises which are even above inflation? That sounds pretty optimistic, especially given things like constantly rising healthcare costs.

 

[brianmanahan]

Please tell me you dont have 60K in a bank account losing 3% a year to inflation.

i have almost that much, plus some more in I-bonds. /shrug

inflation isn't %3, so it's not losing that much. maybe %1 between inflation and the interest rate.

i keep putting it into taxable investments, slowly but surely. most of it i got in back in 2010-2011.

 

[Exterous]

inflation isn't %3, so it's not losing that much. maybe %1 between inflation and the interest rate.

Probably closer to 1.5% given the abysmal average 0.1% interest savings accounts are getting these days.

Just out of curiosity assuming my math is right by keeping his $60k in the bank he lost out\would have lost out on $7740 in returns in the last year, about $17,500 over the last two years and about $39,000 over the last 3 years ($60k invested in the S&P at the start of 2012 would = ~$99,500). So sure the market might have its downs but the last 3 years have been fucking stellar and it would take quite the dip\stagnation for bank account interest to make up this gap

 

[Jumpem]

Probably closer to 1.5% given the abysmal average 0.1% interest savings accounts are getting these days.

Just out of curiosity assuming my math is right by keeping his $60k in the bank he lost out\would have lost out on $7740 in returns in the last year, about $17,500 over the last two years and about $39,000 over the last 3 years ($60k invested in the S&P at the start of 2012 would = ~$99,500). So sure the market might have its downs but the last 3 years have been fucking stellar and it would take quite the dip\stagnation for bank account interest to make up this gap

Your emergency fund should not be held in equities.

 

[Jeff7]

i have almost that much, plus some more in I-bonds. /shrug

inflation isn't %3, so it's not losing that much. maybe %1 between inflation and the interest rate.

i keep putting it into taxable investments, slowly but surely. most of it i got in back in 2010-2011.

Given that most savings accounts pay enough for every $10k saved to buy half of a candy bar a year, I've also taken the I-bonds route for the emergency fund. One division of the company basically folded after a single customer switched vendors. (50%+ of the revenue went away overnight.)

Problem is, the parent company is the same way: A large portion of our revenue comes from one source. While I doubt that there's any kind of issue with the relationship, there's no major barrier that's stopping them from deciding to go boost China's manufacturing sector instead of ours. Should they do that, I'm sure the company will be able to survive, but there'll be far fewer names on the payroll.


Perceived instability in general = more propensity to save money when possible in a way that also keeps it liquid.

 

[rcpratt]

Sorry im not a financial genius like you or make $250k a year.
I didn't contribute 10% from the beginning, only the last 5 years maybe. I remember at 1 job i did 6%. I currently make about 40k. My first job was like 20k at start.

Sorry, not trying to pick on you. The numbers just didn't add up. 5 years makes a lot more sense than 15.

 

[s0me0nesmind1]

I said above, keeping $60k for with no purpose other than "feeling good" is not a wise move. Keeping $60k for a downpayment can very well be a wise move.

For me, I can sell the house and use the proceeds for a downpayment on the next house. There is always the difficulty of trying to have two homes at once if the old one doesn't sell, but apartments and/or bridge loans work for that.

Ah, just curious on what your response would be.

What I have actually been advised for those types of needed liquidity is to actually get a loan through your employer 401k (if possible, of course). Basically, you are paying interest back to yourself and is virtually a way to keep myself invested yet have money when needed for practically no cost.

Of course, they don't give out loans for just anything - so it's not quite that easy.

Also, I keep telling myself there is going to be market correction, so I'm a bit slow on tossing everything in at the moment... I haven't made my 2015 ROTH contributions for that very reason heh.

 

[bbhaag]

No just no. DINKS are so ridiculous.

 

[Red Squirrel]

lol I'd love if I could contribute as much as 5k per year. With the constant rising cost of living, saving is harder than ever before and it's only going to get worse. I contribute maybe around 2-3k max into RRSPs. I have about 10k so far. Better than nothing I guess, I don't know if lot of people my age even are buying RRSPs these days. This economy has got to crash at some point though. Companies are laying off like crazy, salaries arn't moving, yet cost of living keeps going up at an alarming rate. I made 80k last year, I should be swimming in money but I'm just doing ok. I don't know how people who live on minimum wage are managing. I really feel for them.

 

[dullard]

This economy has got to crash at some point though. Companies are laying off like crazy, salaries arn't moving, yet cost of living keeps going up at an alarming rate.

It is time to stop spreading this gibberish. It was valid 5 years ago, but not so much any more.

Layoffs are at at 17 year low: http://www.challengergray.com/press...t-32640-cuts-top-lowest-job-cutting-year-1997

Inflation was negative (just barely) for the last 12 months:
http://www.reuters.com/article/2015/02/26/us-usa-economy-idUSKBN0LU1J220150226
If you haven't noticed, oil prices plunged (so did heating oil and natural gas). That took commodity prices down to the lowest levels in years (gold, silver, and platinum are at multi-year lows, copper isn't far behind). Food is also on its way down. Soybeans, wheat, hogs, sugar, and coffee are all at the lowest point in a year. Cotton is nearly half of what it was last year. Mortgages have extremely low interest rates. I could keep going.

You were correct about the wages though. They were roughly stagnant for decades after you adjust for inflation. But there have been recent hints of change there too. While the last few job reports show that hourly wages were essentialy flat at only a 2% growth, the number of hours worked is increasing leading to more pay per week. http://blogs.wsj.com/economics/2015/03/06/february-jobs-report-wage-growth-is-stuck-around-2/
But now big companies like Walmart are just starting to announce fairly big wage increases:
http://money.cnn.com/2015/03/05/news/economy/wage-growth-february-jobs-report/

 

[jlee]

lol I'd love if I could contribute as much as 5k per year. With the constant rising cost of living, saving is harder than ever before and it's only going to get worse. I contribute maybe around 2-3k max into RRSPs. I have about 10k so far. Better than nothing I guess, I don't know if lot of people my age even are buying RRSPs these days. This economy has got to crash at some point though. Companies are laying off like crazy, salaries arn't moving, yet cost of living keeps going up at an alarming rate. I made 80k last year, I should be swimming in money but I'm just doing ok. I don't know how people who live on minimum wage are managing. I really feel for them.

If salaries aren't moving, move to a higher salary.

 

[ViviTheMage]

Ah, just curious on what your response would be.

What I have actually been advised for those types of needed liquidity is to actually get a loan through your employer 401k (if possible, of course). Basically, you are paying interest back to yourself and is virtually a way to keep myself invested yet have money when needed for practically no cost.

Of course, they don't give out loans for just anything - so it's not quite that easy.

Also, I keep telling myself there is going to be market correction, so I'm a bit slow on tossing everything in at the moment... I haven't made my 2015 ROTH contributions for that very reason heh.

The only issue with this is you are not making any money on the funds you are having loaned out from your 401k.

 

[s0me0nesmind1]

The only issue with this is you are not making any money on the funds you are having loaned out from your 401k.

Truth, but that is temporary - and it depends on how long you, yourself, take to pay it back. Either way, depending on how the market moves you aren't losing much.

Compare that to ridiculous loan %'s and you are losing chump change.

 

[ViviTheMage]

Truth, but that is temporary - and it depends on how long you, yourself, take to pay it back. Either way, depending on how the market moves you aren't losing much.

Compare that to ridiculous loan %'s and you are losing chump change.

I'd agree for sure on that.

 

[Exterous]

Your emergency fund should not be held in equities.

Ok...? Never said it should be

 

[s0me0nesmind1]

Please tell me you dont have 60K in a bank account losing 3% a year to inflation.

Yes... yes we do. Well, spread out amongst various accounts. But yes.

It's something I'm trying slowly to reduce, but it's kind of hard to want to get rid of a safety net once it's over you, ya know?