What advice would you offer 38-year-old me? (pension plan, financial advisor, community)
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If I could do it all over again, I would have made max annual contributions to a Roth IRA before my 401(k). Your 401(k) withdrawals will be taxed as ordinary income; and as we've recently seen, ordinary (earned) income bears the biggest tax burden of all. Your Roth withdrawals are tax-free and you won't have RMDs to deal with either. Each time the Feds extract 25% from my 401(k) RMD, I kick myself for not having a Roth.
OK everyone...I *WILL* be maxing a ROTH in 2018*!
Saving is hard enough (at least for me)...I kinda dread the thought of seeing that amount of taxes taken out of my 401k as well. However, I would take this over the alternative of having no 401k funds at all for sure! Thanks for sharing.
*ETA: I think what I will do is instead of putting more money into the emergency fund in the Cap1 account, I will just fund the ROTH and let that serve as an extension of my EF (which hopefully will not need to be tapped but at least allows me to starting maxing out ROTHs for now).
First off you are doing terrific. You got some great suggestions here and some soso ones. I will tell you at your age you are doing fine. Could be better and could be worse is how I see it. But.... based upon my experience I have a couple of thoughts for you.
One it is very nice to plan and save for retirement but do not forget to live for today. Some skirted that here by saying that if you like to travel find a job that is about traveling. I won't say that is a bad idea but it is not living for today. Enjoy today like there is no tomorrow. Does that mean spend like a drunken sailor? Nope, it means enjoy your life, your family and your friends. Thank you for the lovely reminder to do this!
At your age 40k is a great start. Keep up with it. I think your plans on expanding it good but if you do not make it to max just do not go lower than you are right now. You never told us what kind of investments you have your 401k in but lets hope it is an index fund that covers the entire market of equities. At your age that is your best engine to really run up the numbers. Just remember that the money creeps up but then it will jump. You almost won't even notice the big jumps. I can come back and post the allocation but you are right that it covers the entire market-I just adjusted it to pull back on the stocks just a bit and allocate to bonds just a tad bit more based on my expected retirement age.
As someone mentioned you could also start an IRA. Without knowing what your 401k investment is I also suggest an IRA. In fact I suggest a Roth IRA. To me your CAP1 360 is more of an emergency fund so I would suggest a Vanguard 2050 target fund for that Roth. You are allowed to put in $5500 a year on that but the Roth is tax free for ever. I have decided this is a smart idea and instea of continuing to contribute to the Cap1 EF fund next year I will fund a ROTH instead. My understanding is withdrawals from them are free although I hope not to ever have to tap into one.
At all costs avoid tapping any of your retirement funds. The CAP1 is okay to tap in an emergency as to me that seems like the emergency fund. If you tap that fund pay it back for the next time you need it. I did this in my 20s (tapping 401k). Lesson learned! The EF fund is now majorly important to me for this reason.
As some suggest finding a job with a pension is nice but if you are happy where you are that has a lot going for it. It goes along with living for today. Don't worry yourself over what could be. Remember today is all you are guaranteed. I'm not crazy about my job but I'm "content" with it-I vest in our private pension in about 1 more year so...we'll see how the next year or two goes and in the meantime it doesn't hurt to look around/see what my market value is. Doesn't mean I'll leave but it's probably just a smart thing to do.
Best wishes to you and have a joyous and prosperous New Year. Thank you!! Same to you!
If you take the money you were going to buy a house with and invest it wisely instead, you should be able to build up enough so that by the time you retire you can use the interest income is that is generated to cover rent.
I just don't see a person like you who is single, loves to travel and likes to have flexibility in her life tied down with a house and all the burden that comes with it.
I think this is pretty right on advice, you don't have kids so you don't need to worry about backyards, school districts, etc.... Why burden yourself with a multi-bedroom house that you will be paying taxes on + maintenance & upkeep for 1 person? Look for a comfortable condo or townhouse in an upcoming or established good area, a place you might be happy in for 20-30 years possibly, one that allows pets, consider the potential subleasing issues for the future. Interest rates are rising, as is inflation, so this might be one of your priorities.
If I had bought a SF house anywhere within a 2 hr commute of where I worked, I wouldn't have been able to retire when I did, too much $$$ spent over the years to maintain & heat empty rooms & repair the structure & taxes. Plus I walk to shopping & restaurants from here, invaluable & the value has easily more than doubled in less than 15 years - the importance of buying in the best area you can afford now.
The best savings device I found is to just have a percentage of $$ taken directly from each paycheck automatically & deposited into 401k & IRA/Roth IRA accounts before I even have a chance to get my hands on it, I increased the percentages after I bought my condo.
One mistake I made, of many, is buying individual stocks, luckily Apple turned out ok & neutralized all my stinkers but I thought I was smarter than I really was - just get S&P 500 & other index funds... I'm still waiting for all those AOL & Oil stocks to make me rich
Saving is hard enough (at least for me)...I kinda dread the thought of seeing that amount of taxes taken out of my 401k as well. However, I would take this over the alternative of having no 401k funds at all for sure! Thanks for sharing.
If you make the assumption that your tax rates are lower now than they will be in retirement, then a Roth IRA is better. If you make the assumption that tax rates are higher now than they will be in retirement then a 401k or traditional IRA makes sense.
Prove this to yourself with a simple spreadsheet. "You can pay me now or pay me later." But either way you will pay taxes.
A 401K has two possible advantages over a Roth - first, a company match. If you count a company match with a 401k it's difficult to imagine a scenario where a Roth beats a 401k. Again, use a spreadsheet or calculator to prove to yourself. The second is simply convenience - if you have automated deductions this takes the work out of it for you and makes you more likely to stick to your goals.
Of course if your employer had a Roth 401k with matching that would likely be the best option. Of course a roth has lower contribution limits, etc. but does have more flexibility on withdrawals.
Point being that ignoring or lightly funding your 401k in favor of a Roth IRA may or may not be the best plan.
Southkakkatlantan- Hello -- I've enjoyed reading this thread so far; many great ideas. I'm not going to touch on finances, much, because so many others already have. Mine is mainly, well, life!
First, I will say that I would not buy a house if you think you are likely to move in a couple years. But if and when you do you want to buy, if it is a smaller house you want, then go for it!!! It could be more trouble if you are travelling on the job a lot....but, maybe you want to have a garden and a dog, or maybe even a roommate! Go for it -- don't buy a condo if you want a house. I'm a female and I LOVE to work out in the yard, and when I lived up north, I enjoyed being outside shoveling the snow with the guys. So do what you think will work best for YOU, Lol!!!
Second, I would spend time working on the female friendship part. Friendships are not that easy to form these days, although that is not always the case. Perhaps a result of everyone being so busy and pressured these days; it is sad. Good friends are necessary, and usually, once that bond is formed/cemented, the friendship will stay. One of my daughters went away to college and ended up living in different city after college [she is married]. When they decided to relocate back to Phoenix, a number of years had gone by, and it was difficult to just pick up the pieces. She is a career gal, so far, and works long hours, sometimes not getting home until 7:30 or 8:00 pm. That part has made it hard to join any clubs/singing groups, or even a Bible study. But she did re-connect with one high school friend, in a similar industry, and that led to new friendships with a couple of her friends from work, and these ladies subsequently moved on to new positions in different companies, but they have some commonality of discussions. A fourth gal in the group is divorced and childless and also a childhood friend. Just last night they had their Christmas get-together -- a week late due to hostess getting the flu!! Sometimes they meet in someone's home/condo, or sometimes at a restaurant. But they do faithfully get-together about 4-5 times a year, just for fun. All ladies in their 30's. Myself, my deepest female friendships have been made through women I have met at church -- and the only way that happens is if you regularly attend some smaller group functions and see the same people. Meet-up has some great opportunities out there too, these days. And, of course, to have a friend, you have to be a friend -- it is good to have a support system out there both for the fun times, and also to help each other through the rough spots!
You sound like a wise lady, and I think you will do fine with your plans. And you never know what is around the bend -- one of my friend's daughters with a good job, moved out of state and all of a sudden met a fellow and ended up getting married, first time for both of them at age 42.
Good friends are a huge thing in life; spend some time making friends. They can help make your "Golden Years" more "golden".
I dream of retiring one day and I read the threads here often.
By the way I'm currently single, no kids (no plans to have any), l
1. Keep reading from this Forum!
2. Most Americans are concentrated on financial issues in retirement. However, several papers point out the importance of friends/relatives/social connections in retirement. The subjective "well being" in retirement depends on these factors more, than on your bank account value. The kids you do not plan to have now can be your best friends/support in later years. Do not take me wrong - money is important also.
3. Keep saving money with your 401k plan, even very small monthly deposit can do miracles.
At 38, I was 4 years short of reaching my pension.
Invest; you can not invest too much. I was burned early by stock market investing, so I focused on investing in apartment complexes. When I reached 42 and I was forced onto pension, I owned a home and I had enough capital to buy a farm [without a mortgage].
I have been living on pension, messing on my farm for 16 years now. I am still another 8 years away from drawing SS.
If you invest enough now [while you are working] then things will be easier for you later.
1) Debts are currently paid off. I have several credit cards I put all my bills on for travel points and pay off religiously. (I'm a baby credit card churner for travel purposes). I'm a renter though and think I will buy a home at some point (?). I'm very torn on this (rent versus buy calculator says I'm in a "you should buy a home" city. But on average I've moved every 18 months since I was like 22 so right now I just prefer to keep my mobility options open and not commit to a mortgage in case I need to move for job purposes at any point which has happened in the past. Any thoughts on this? I feel like I need to have a paid for residence in retirement and there aren't many years left to do this.
2) Just bumped 401k up to 10%-there's currently 40k in it and my goal is to get it to 15% in 2018 and start maxing it in 2019 (baby steps although yes I know I don't have many years to max it). No IRA at the moment. 10K in emergency fund and putting 5k a year into that fund going forward annually. Oh, forgot to mention-no car. Places to cut in my budget: mother's bills (just started paying some of them as she's been unemployed for 4 years now), travel expenses (here's where I need to get better at credit card churning) but for me the biggest issue is how much I spend on food. Always has been. I've been using Mint this year but it was very sporadic so in 2018 I need to commit to tracking *every* dollar.
3) This is hard. But with no car I think I'm doing ok-no pressure to upgrade the car. Also, I work from home so no pressure to buy nice work clothes. I've become a homebody so not many pressures to upgrade lifestyle at all right now. The friends I do have are mostly low key so that helps. I will say that I'm getting house fever though as I'm getting to be the last one without a home and mother is making "you have nothing to show for yourself in all your years of work" comments so social pressures make it difficult. I pay wayyyy more in rent than I did 5 years ago which I cannot stand but the rental prices in Atlanta are just on the rise which is an issue.
4) My vice is travel. As mentioned, the card churning will help. I could save so much by not paying for travel but I place a very high value on it. So gotta get really creative there. Point 4-which is about balance-is a GREAT point. Right now I feel that with 40k in 401k and nothing else perhaps I am putting too much money into the 'fun' part of my life? I can post an actual budget if you like.
5) Well, at almost 40 I've lost many years of compounding already so I feel anxious all the time I will be living under a bridge. But I do want to do what I can to turn that around now while still balancing having some sort of life. Thank you for your well thought out response!
A house is very much a forced savings program, and with that and equity people can come out ahead. I did, here. But in other places it’s a break even. However — If you can put away money easily and enjoy the benefits of renting, keep renting. I know a number of people who own and they are miserable owning. Every little bump in the road is an utter catastrophe not for lack of money, but the fact is they don’t want to handle that stuff. It’s just too much, they don’t know how to, who to turn to. Just all too much.
It was out of my hands but oh how I wished I was a Government employee. The best gig in the world if one is not looking for riches but an easy, monotonous secure job that gives a person much more time in the prime of their lives. I'm so envious when I talk with people who are retiring in their 50's since they already put in the time.
Like some have said apply if you can and get that pension. It's a godsend.
It was out of my hands but oh how I wished I was a Government employee. The best gig in the world if one is not looking for riches but an easy, monotonous secure job that gives a person much more time in the prime of their lives. I'm so envious when I talk with people who are retiring in their 50's since they already put in the time.
Like some have said apply if you can and get that pension. It's a godsend.
Monotonous secure job? Yes there are many, I guess.
My brother is a Fed Employee and deployed to war zones. He dealt with hazardous material, ammo. Wouldn't call that safe. One of his colleagues died in Kabul.
It's my opinion that the general public has very little appreciation for what Federal Employees do for the country and believe that they're pretty much freeloaders on the gov't dole.
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Lesson learned! The EF fund is now majorly important to me for this reason.
