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My current financial situation is pretty uncomplicated but I feel quite dumb for not thinking about retirement sooner. So I recently turned 38 and I haven't really thought much about retirement, to be honest, until now. It seems like there is A LOT to consider. I had basically done what others around me have done and never really thought much about this issue (until my recent birthday). My institution offers a 100% matching retirement plan (401k type) so I've taken advantage of that in the past few years. Beyond that, I make sure I put the $5,500 in the traditional IRA every January, and I just put extra cash flow into savings and stocks at the end of each month. I don't have any specific investment strategies when it comes to stocks. I just buy things that sound useful, like Apple (because I bought a laptop and I liked it...too bad the stock hasn't performed too well), or Google (because I like using the search engine) or Amazon (because I use it to avoid grocery stores etc.). Needless to say, no finance genius here.
Recently (after ignoring HR emails about retirement investment options for like 2-3 years), I found out that I am also eligible for other employer-sponsored retirement tools. There is a voluntary investment option in which I can participate - the option offers a pre-tax option and a post-tax option (Roth, but NOT income limited like a Roth IRA). The maximum contribution is limited to $18,000/year, which is only $1500/mo or $750/pay period. There is a caution that if I participate in both the 100% matching retirement plan AND this voluntary investment option, my combined contributions (including the matched amount from the employer) cannot exceed the "IRS annual additions maximum" because this is considered a 401k-type vehicle (per IRS max is $54,000 for 2017). However, there is another section in the IRS code that says personal contributions cannot exceed $18,000/year.
Question: Since I already contribute $18,000 under the matching scheme (and I believe the employer adjusts the matching based on IRS limits), does that mean I cannot participate in the voluntary investment option? Ideally I would like to move some of my extra cash flow each month to the voluntary option since it's only $1,500/month and there are pre and post tax options so presumably these are tax-advantaged. I really hope it is $18,000 retirement plan + $18,000 matching from employer + $18,000 voluntary = 54,000 max per annum. I already started contributing to the voluntary option this month but want to make sure I'm not exceeding any IRS maximums. I can stop the contribution if I am in fact going to exceed the 2017 limits. I already emailed HR but alas no one in HR works on weekends, and the question is bugging me.
Question 2: IF I'm allowed to contribute $18,000 to this voluntary investment (in addition to the $18,000 I definitely contribute to the employer-matched plan), should I do the pretax or the Roth post-tax? This is not like a Roth IRA where there is an income limitation on eligibility, so I can definitely participate.
My partner and I visited a financial planner a few years ago but all he talked about was golfing and vacationing. It was a TOTAL waste of our time. We'll visit another planner again to plan our finances. It is really mainly for him since his compensation is significantly higher and his portfolio is probably totally imbalanced and inappropriately conservative for his age (early 40s). In my fantasy the HR department would email me back with a response today. Well, I can always dream...
Make sure you go to a fee-only fiduciary financial planner on an hourly basis otherwise they'll rip you off by either recommending high commission products (like annuities and actively managed mutual funds) which are bad for you or they'll try to make investing seem complicated and convince you that investing involves market timing and picking winning funds. You should be investing in as few as a couple of index funds. Stock and bond index funds. Then percentage rebalance if and when needed.
We're definitely going to be picky about our next financial planner and no more recommendations from other partners at his firm. The previous planner gave us our individual "retirement number" which is X dollars at retirement. Since we were well ahead of schedule based on his calculations, he tried to sell us some life insurance investment option that was well beyond our financial sophistication. Needless to say, we never returned his calls. I just max out on my employer-sponsored retirement plans and the majority of my extra cash flow goes to stocks and index funds. I'm not into buying/selling to make a quick buck. I like to build my financial basis slowly and securely. I'm not smart enough to "beat the market" nor do I want to waste my time obsessing about getting rich quick. Life is too short.
Last edited by hellopity; 01-28-2017 at 08:08 PM..
Location: Was Midvalley Oregon; Now Eastside Seattle area
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think that your retirement planning as your 2nd job because in the future, your 2nd job will be your Primary job at retirement.
So inorder to be proficient see many advisors until such time you can see how you can really benefit in this 2nd job.
Make sure you go to a fee-only fiduciary financial planner on an hourly basis otherwise they'll rip you off by either recommending high commission products (like annuities and actively managed mutual funds) which are bad for you or they'll try to make investing seem complicated and convince you that investing involves market timing and picking winning funds. You should be investing in as few as a couple of index funds. Stock and bond index funds. Then percentage rebalance if and when needed.
investing is easy , but exhibiting good investor behavior can be the down fall of most small do it yourself investors . very few small investors end up doing the right thing and can stay the course in downturns .. pucker factor is rarely a learned skill .
most folks can't be fire fighters or cops . they can't get themselves to run in to situations reasonable people are running out of .
Last edited by mathjak107; 01-29-2017 at 02:41 AM..
The "401K like vehicle with a maximum contribution of $54K" for 2017 is a SEP IRA or Simplified Employee Pension plan. There are certain requirements associated with these plans.
Regarding the seeking of investment advice my recommendation would be to seek either a "fee only" planner or possibly reach out to Fidelity or Vanguard as they have advisory services but are not a "sales" house. I like both firms but lean more to Fidelity on the advisory side. My third choice would be Raymond James for the larger firms.
Stay away from bank brokers- those at your bank and Edward Jones, Morgan Stanley and certainly avoid anyone that only talks about his golf game & vacations. To me that guy is subtly telling you that he places his interest in himself over you which is typical of salesmen. He was attempting to portray how successful he is by bragging about his latest vacation and last golf score when in all reality I want someone that is working so hard he doesn't have time for all these extracurricular activities.
Thanks for the info. My plan is with Fidelity and I'll be sure to check them out. I'm not sure how the retirement plans are structured, but I figure HR will know. I actually don't care about the details as long as I'm not exceeding IRS limits. I started playing with retirement calculators over the weekend on Mint, Fidelity and Vanguard and that exercise was pretty reassuring. If I can shift a small portion of additional monthly savings into an employer sponsored, tax-advantaged plan, even if it's just $1,500 a month, that would be super fantastic. I'm really hoping this voluntary investment vehicle is allowed and I can contribute an additional $18,000/year to it in addition to the matched plan. Crossing fingers!
My current financial situation is pretty uncomplicated but I feel quite dumb for not thinking about retirement sooner. So I recently turned 38 and I haven't really thought much about retirement, to be honest, until now.
38? You're just a baby.
Contribute the max to your IRA/401(k) and by the time you are 40, you'll ( at least ) be above average. ( I mean "above" for all ages. )
Quote:
Originally Posted by mathjak107
investing is easy , but exhibiting good investor behavior can be the down fall of most small do it yourself investors .
I'll add to that. Learning to live frugally is hard and doing without today to save for tomorrow is also hard.
If the news of today is to be believed, most people don't get it.
I know I have relatives who don't. I have one who is 68 and just got laid off an has no retirement savings and a lot of debt. Now I'm supposed to feel sorry for him. I feel sorry for the amount of age discrimination he's going to experience, as he looks for more work, but not for the fact that he can't pay his bills.
I've been trying to get him to get into his company 401(k) for the past ( more than ) two decades. He's easily given up more than $150k in 401(k) matching money over that time. ( He was fairly highly compensated. )
Back on track, someone just turning 40 should figure out how to save 25% of their gross income for retirement. Now, that someone just has to figure out what current expenditures to eliminate.
You can't save that 25%? Oh well, eventually, you'll learn to live on less. Unfortunately, you'll be old ( like mathjak ).
9:30pm is our new midnight at our house too. It's important for our health to maintain regular routine. But we get up at about 7:00ish.
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