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GhostofJohnMuir posted:couple more elements that are important. what's your required contribution, how well funded is the plan, is it private or public? the benefit you describe is comparable to the large state pension plan i participate in Thanks for your questions and others, it's a union pension, I'd be the finance director (and I know enough math and finance to determine pension health myself) so I could definitely look into it. In fact presumably one of my duties would be reading reports from the Benefit funds management organization. • ***Pension: Local XX pays 21% of Pension eligible earnings into the XXXX Defined Benefit Pension Plan. Employees are fully vested after 3 years It doesn't look like I need to make a contribution - but it's a private fund and not connected to government.
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Feb 22, 2023 03:36
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litany of gulps posted:I've been lurking in this thread for a year or so now, and I feel as though I've learned a lot, so thank you all for that. A lot of the conversation is a bit beyond my understanding, and it seems as though this is a somewhat unprecedented situation given the high interest rates. I've never paid too much attention to this stuff in the past though, because I've never had any spare money for investment or for anything, really. Circumstances seem to be shifting, and I want to verify that I understand how to react appropriately. What does your savings account look like? You should build some sort of cushion if you don’t have one already. I’d say 3-6 months at a minimum. I can’t comment on investment options for you, but I think in general using the IRA funds is ideally an emergency only situation.
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Feb 22, 2023 03:44
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nitsuga posted:What does your savings account look like? You should build some sort of cushion if you don’t have one already. I’d say 3-6 months at a minimum. I can’t comment on investment options for you, but I think in general using the IRA funds is ideally an emergency only situation. But that's the question. I don't have a savings account, I have money now that should be in one. But if I look at what my bank is offering for a savings account, it's 0.01%. That's absurd, yeah? So then what do I do with the money? Do I put it in some kind of money market? In some kind of HYSA? What's the difference? Why would I choose one over the other? Are there other options that I don't understand? Edit: Or to clarify, I have first invested my excess money into a Roth IRA rather than a savings account. I didn't really foresee a need for an emergency fund in the traditional sense, given the stable nature of employment as a teacher. So I skipped the "accumulate several months of liquid savings" step and just dumped it into the Roth IRA, which seems to have the flexibility to operate as a fund for any sort of special emergencies or big purchases, if need be. But now I've maxxed out the Roth IRA, and I'm trying to figure out where I should put the liquid savings. I don't want it sitting in checking, and regular savings accounts seem like stupid garbage. litany of gulps fucked around with this message at 04:06 on Feb 22, 2023 |
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Feb 22, 2023 03:56
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litany of gulps posted:I've been lurking in this thread for a year or so now, and I feel as though I've learned a lot, so thank you all for that. A lot of the conversation is a bit beyond my understanding, and it seems as though this is a somewhat unprecedented situation given the high interest rates. I've never paid too much attention to this stuff in the past though, because I've never had any spare money for investment or for anything, really. Circumstances seem to be shifting, and I want to verify that I understand how to react appropriately. It seem like you may be confusing your Roth IRA for something else? It _is_ a retirement fund so I don't know why you think you have to pull it out to help supplement your retirement... I mean that is it's entire purpose. I think it is bad to treat your Roth IRA as an emergency fund. Yes technically you can pull out the money but considering you've had it less than 5 years and I'm guessing you're under 59.5, with a few exceptions you're looking at a tax hit + 10%. That isn't where you should be pulling out money in case of an emergency. You should not be pulling out your IRA unless you have no other choice. Because you've already exhausted your other levels of savings and your IRAs are the only remaining sources of money you have left. quote:But it is February and I've hit the maximum contribution there. I'm sitting on about 3000 dollars right now that I'm not likely going to need sitting in a checking account, and by the end of the year I should have a lot more to put wherever would be most appropriate. In June, for example, I should receive a lump sum payout of almost 10 thousand dollars on top of my regular salary for various stipends and bonuses. The differences between them are the amount of interest they offer, how fast you can get that money into cash (liquidity) and how much risk you're willing to take on. SPAXX is Fidelity's Money Market account, this is generally where they hold any money you haven't invested. It offers a 4.22% interest ATM, and you can pretty much pull the money and get it within a couple days barring the weekend. The downside risk is that it's not insured by the government like any backed by FDIC.. although most of the stuff that's in SPAXX are government issued. A HYSA generally offers a higher interest rate (right now 4.45% ish is the higher end) but the caveat with a HYSA is you can pull it out anytime you want but the interest only gets deposited every month. Maybe it compounds daily, but you'll lose the money if you don't wait for when they deposit it into your account. It's also usually FDIC/NCUA insured. Generally you'll get your money within a couple days. CD/TBills offer higher rates if you don't touch them for longer periods. There's penalties or commissions associated with reselling them if you do need to. Some people in here have mentioned buying a Treasury ETF that trades better liquidity for management fees.
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Feb 22, 2023 04:11
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I’ve got a basic question. Since my twenties, I’ve put ~13% of my income into a 403b, allocating contributions to a few vanguard index funds. That’s worked out pretty well for a while, but I’m hitting my mid thirties now, and wondering if I should start allocating some portion of contributions into bonds (or bond funds?), partly because I’m getting older and partly because of interest rates today. What’s the going thought? If anybody wants details I can look up the funds I’m allocating to, but didn’t want to start off with a text wall out of the gate.
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Feb 22, 2023 04:28
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Strong Sauce posted:It seem like you may be confusing your Roth IRA for something else? It _is_ a retirement fund so I don't know why you think you have to pull it out to help supplement your retirement... I mean that is it's entire purpose. I understand that the Roth IRA is a retirement account that you prepay the taxes on in order to gain flexibility on how you can withdraw those funds. I have a government pension plan as my primary retirement account. I live in the United States, where housing prices are absurd but also subject to bizarre market forces that may, in certain circumstances, lead to dramatically decreased prices that I would like to take advantage of, if they ever occur again within my lifetime. I live in the United States, where medical costs tend to come with deductibles that can exist in the range of several thousand dollars. I live in the United States, where pension plans, if they survive until your actual retirement, rarely see adjustments for cost of living. Am I mistaken in my thinking about the purpose of this account? It isn't my retirement account, it's an account that I would like to see exist until retirement, but I might need it for other purposes. The account of last resort is the pension account, not the Roth IRA. The Roth IRA is a tax-advantaged buffer between my actual retirement account and emergency spending. I would like to not spend any money from this account, but again, that's the point of the question - what do I do with the "savings account" money? quote:The differences between them are the amount of interest they offer, how fast you can get that money into cash (liquidity) and how much risk you're willing to take on. Yes, but... this is so close to striking at the answer to the question. Why does a money market account have a lower interest rate than a HYSA if it isn't FDIC insured and isn't as easy to transfer? Why would you pick the one over the other? What's the best place to put "savings account" sort of money that you want to generate more money but also want easy access to? Is there a best answer?
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Feb 22, 2023 04:35
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Strong Sauce posted:Yes technically you can pull out the money but considering you've had it less than 5 years and I'm guessing you're under 59.5, with a few exceptions you're looking at a tax hit + 10%.
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Feb 22, 2023 04:57
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spf3million posted:You can withdraw Roth IRA contributions without penalty at any time. Withdrawing gains incur the penalty. I think if you backdoored it then you have to wait five years before you can take out the contributions.
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Feb 22, 2023 04:57
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quote:What's the best place to put "savings account" sort of money that you want to generate more money but also want easy access to? Is there a best answer? Regarding SPAXX: you can open a brokerage account with Fidelity for free, dump some rainy-day money into it, designate your default holding as SPAXX and collect a taxable dividend each month. You can also sign up for a checkbook/debit/credit card that can withdraw from that SPAXX account as though it were cash. SPAXX has a floating expense ratio, but it's more than offset by the dividends. If you let it sit, it makes money, and if you need to spend from it, you can easily do so. Having a SPAXX account is pretty versatile, is all I'm saying. Not a bad idea at these rates.
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Feb 22, 2023 05:24
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Space Fish posted:Regarding SPAXX: you can open a brokerage account with Fidelity for free, dump some rainy-day money into it, designate your default holding as SPAXX and collect a taxable dividend each month. You can also sign up for a checkbook/debit/credit card that can withdraw from that SPAXX account as though it were cash. SPAXX has a floating expense ratio, but it's more than offset by the dividends. If you let it sit, it makes money, and if you need to spend from it, you can easily do so. And this crosses streams with the stock picking thread, but by selling Cash Secured Puts on stocks that I expect to increase in value or maintain their current price, the premium I gain from selling those puts increases my core position, in turn generating even more gains. Interest rates not being near-zero for the first time since 2008 certainly opens up many interesting possibilities.
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Feb 22, 2023 05:56
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spf3million posted:You can withdraw Roth IRA contributions without penalty at any time. Withdrawing gains incur the penalty. litany of gulps posted:Yes, but... this is so close to striking at the answer to the question. Why does a money market account have a lower interest rate than a HYSA if it isn't FDIC insured and isn't as easy to transfer? Why would you pick the one over the other? What's the best place to put "savings account" sort of money that you want to generate more money but also want easy access to? Is there a best answer? first off, i made another mistake in that SPAXX is a money market fund not an money market account. MMAs are the ones backed by the government/MMFs are not. i didn't say they were harder to transfer than HYSAs but both generally take longer to move to your main checking account unless the accounts let you setup a debit card. both are generally low risk places to put your money. the difference is that HYSAs require you to hold money to a certain point to realize all the interest that's accumulated. SPAXX you can just take out whenever you want. basically if you're willing to lend out your money to these financial institutions for longer periods of time, they'll give you a higher rate of return for it. they take that money and generally do other investments or lending and give you most of that less a management fee. if you want to know what the correct answer is... well we can't tell you that because no one here knows your risk tolerance and what your money needs are. if you have absolutely no emergency savings right now then you probably need stuff that is more liquid, that you can get out immediately. so just put your money into SPAXX.. edit: i just went back and read the terms for my HYSA. i guess they do give you the accrued interest rate, but just at the next cycle. so i guess its basically very minimal differences. Strong Sauce fucked around with this message at 07:55 on Feb 22, 2023 |
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Feb 22, 2023 06:27
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pseudanonymous posted:Thanks for your questions and others, it's a union pension, I'd be the finance director (and I know enough math and finance to determine pension health myself) so I could definitely look into it. In fact presumably one of my duties would be reading reports from the Benefit funds management organization. The health of the pension fund isn't something you can control in a db plan, so I wouldn't spend too many calories chasing that down. The 21% contribution of earnings sounds like a provision in the collective bargaining agreement with the Union and the company. In a db plan, the funding of the trust and the payout are usually two separate things, so it's not really relevant. If you want to do financial planning, the summary plan document should tell you how to calculate the expected payout amount. Usually you have to have at least 10 years of benefit service and be 55 to be able to take your pension prior to your normal retirement date (usually age 65).
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Feb 22, 2023 10:46
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drk posted:Yes, because BND has a duration of ~6 years. The high yielding CDs/Treasuries/etc you are seeing are much shorter in duration. esquilax posted:Focusing on long term here: In the future, when you have more money to invest, you will need to buy additional bonds. This might be either because you received a coupon payment, or your bond matured, or you just want to put more money into your retirement savings. You won't necessarily get the same interest rate on those new future bonds that you are getting today - the market expects that interest rates will go down in a year or two and that's all priced in. Got it, thanks for the clear explanation. What I still don't understand is when reviewing "BND" for example, the price for every duration from 1 month to Max has seen a decrease in the price. So what is the benefit here? I get that past performance doesn't measure future performance but does the potential benefit come from the yield and expectation that by holding this long term until retirement in a few decades that it will bring some value along with the stability and diversification strategy for one's portfolio? Busy Bee fucked around with this message at 15:01 on Feb 22, 2023 |
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Feb 22, 2023 14:58
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Strong Sauce posted:ah yes fair. still though just a weird place for your emergency funds. liquidate all your investments from the roth ira and then sell them off until you've only taken out what you've put in? then you can only replace if you do it within 60 days.. I think they're talking about less of a normal emergency fund (e.g. 3 months expenses) and more about how to put aside the remainder that probably won't be touched. It's optimal to leave it alone, but it's better to need to touch the principal in the case of catastrophe than to never invest in it.
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Feb 22, 2023 15:08
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BRAKE FOR MOOSE posted:I think they're talking about less of a normal emergency fund (e.g. 3 months expenses) and more about how to put aside the remainder that probably won't be touched. It's optimal to leave it alone, but it's better to need to touch the principal in the case of catastrophe than to never invest in it. When I was younger I used to put everything I could into a Roth IRA right before the deadline, even if it meant taking savings to 0. But until that point, everything was kept as cash in checking or savings. I figured it was better to lose a portion of my Roth IRA in an emergency vs underfunding my Roth IRA and never having an emergency. It took discipline to constantly build an emergency fund but also not constantly stress over it. My Roth IRA was with my credit union. They offered about double the savings rate of a money market account and no investment options. Not much growth but no risk of losing value and easy to convert to cash in a money market account. Once I got on my feet more, it was a nice balance to roll over to an investment account. Obviously I think this is a valid strategy since it worked out for me. I wouldn't recommend it for everyone.
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Feb 22, 2023 16:30
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litany of gulps posted:, Best answer is typically HYSA, money markets are mostly coming up in discussion right now because a lot of them currently have a higher realized yield or interest than most HYSAs. I would not treat a Roth IRA as a savings vehicle--yes, you can pull out contributions without penalties, and you can actually pull out earnings up to some fixed amount without penalties for a first-time home purchase (it is still taxed, though). The thing that gets glossed over whenever this is discussed though, possibly because it's obvious to a lot of the people posting in this thread, is that there's no putting those funds back. If you have $24k in contributions that you pull out for a down payment, you've effectively lost two years of capped contributions in that account. I know in your case, where it's not your primary retirement vehicle, it probably matters less, but I feel like it's worth mentioning for anyone else reading the discussion. For me, the big reason why I wouldn't ever think of my IRA as a "backup emergency fund" is that it sort of sets two objectives at odds. Either that money is invested in something fairly stable, so you're never forced to pull out money at a loss when you need it (defeating the purpose of using it as an investment vehicle) or you're invested in some sort of stock funds because you want that money to grow (increasing the risk that you'll have to pull contributions when your return is negative). If there's any chance I'll want to use money in 5-10 years, I have it all in I Bonds or HYSA. I Bonds don't meet your needs exactly because the money's locked in for the first year and you lose the last few months of earnings if you sell them before 5 years (iirc). HYSAs, though, are a guaranteed return, which isn't always the case if you have IRA money in a TD fund. I definitely appreciated having a few thousand in a HYSA earning 0.75% or whatever in 2020 that I could tap to pay for a costly, unexpected house repair, especially when my IRA was down 2% or whatever. I think especially right now HYSAs or money markets make more sense as a savings vehicle, even as the backup emergency fund. My HYSA is at 3.75% and last I checked my Vanguard MM fund had real returns around 4.1% or higher. The latter is a little harder to get money out of, it would involve selling some of the fund and transferring that money to a more usable checking or savings account, but I know there are also money markets where you can get checkwriting set up so you can pull directly from the account (though then you're just limited by whether someone will take a check or not, most of them won't do transfer via ACH)
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Feb 22, 2023 16:32
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I think my Vanguard settlement fund (and its MM fund) supports ACH transfers as well as wires. Seems pretty similar to any HYSA.
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Feb 22, 2023 16:38
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skipdogg posted:I’m shooting for 3M at retirement and hopefully social security is still around. Should be enough to make do, assuming I live long enough to retire. 3 million in 2045 dollars, not so much.
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Feb 22, 2023 16:42
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WithoutTheFezOn posted:3 million in today's dollars would be more than comfortable for most people. Basically 100k/yr, indexed, forever. you're supposed to draw down the balance so i am guessing that for most people that 3 mil in 2045 dollars should be fine
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Feb 22, 2023 16:46
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Yeah I was stretching the meaning of “forever”. To me it means non-zero balance for 35 years. 100k in 2045 will probably be about the same as roughly 55k today.
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Feb 22, 2023 17:08
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I wonder if polled folks thought they were talking about Retiring Now with $5M VS Retiring at Retirement Age at $5M The great thing about retirement age is you get to die not too terribly long after, so it's harder to run out of money
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Feb 22, 2023 18:44
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Busy Bee posted:Got it, thanks for the clear explanation. Ya comparing price doesn't reflect dividends you'd have received over that time.
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Feb 22, 2023 19:23
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Epitope posted:Ya comparing price doesn't reflect dividends you'd have received over that time. Morningstar has nice graphs that can show price with dividends 
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Feb 22, 2023 19:33
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Busy Bee posted:Got it, thanks for the clear explanation. it's been... a very bad two years for bonds. unusually bad. in general, a bond component of a portfolio tends to smooth portfolio volatility and increase risk-adjusted return (e.g. sharpe or sortino ratios). not the case in the past year or two when comparing VT (world equities) and a bond-heavy target date fund such as VTHRX. https://www.portfoliovisualizer.com...location2_2=100 drk posted:Morningstar has nice graphs that can show price with dividends stockcharts will do that too, by default it graphs total return. useful for comparing assets on the same chart. https://stockcharts.com/freecharts/perf.php?BND&n=3996&O=011000 slight but curious difference between morningstar and stockcharts' return % which I can't immediately explain even when graphed on the daily. morningstar has pretty nice and flexible charts for single tickers though, a good free resource. good chart. https://www.morningstar.com/etfs/xnas/bnd/chart
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Feb 22, 2023 21:03
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litany of gulps posted:I understand that the Roth IRA is a retirement account that you prepay the taxes on in order to gain flexibility on how you can withdraw those funds. I have a government pension plan as my primary retirement account. I live in the United States, where housing prices are absurd but also subject to bizarre market forces that may, in certain circumstances, lead to dramatically decreased prices that I would like to take advantage of, if they ever occur again within my lifetime. I live in the United States, where medical costs tend to come with deductibles that can exist in the range of several thousand dollars. I live in the United States, where pension plans, if they survive until your actual retirement, rarely see adjustments for cost of living. Am I mistaken in my thinking about the purpose of this account? It isn't my retirement account, it's an account that I would like to see exist until retirement, but I might need it for other purposes. The account of last resort is the pension account, not the Roth IRA. The Roth IRA is a tax-advantaged buffer between my actual retirement account and emergency spending. I would like to not spend any money from this account, but again, that's the point of the question - what do I do with the "savings account" money? What the amount is is up to you , but you want to have $xxxxx amount of money in a HYSA FDIC insured savings account (like Ally). Currently they have 3-4% interest back, but I’ll just fluctuate based on the Fed rates, etc. The point of having it is not to maximize return directly, but to have funds to pull from so that you can leave your money in your Roth. I would view your Roth as the same as your pension: absolutely last case resort to pull from. What if you lose your job right when the market collapses and your Roth is down 20% or more ? The point of emergency savings is that , in an emergency , or sure an opportunity like suddenly low house costs , you have funds that you can pull without withdrawing from long term retirement funds. Honestly, based off what you have posted, I would recommend some range of $10-20k in emergency funds in a HYSA. I do that, highly recommend it (obviously assuming a person is fortunate enough to save, etc). You’re right that poo poo in America can suck big time, so that’s your best hedge against it.
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Feb 22, 2023 23:07
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Keep in mind with a Roth you can only withdraw it penalty free after the money has been sitting in there for 5 or more years. And that's for each chunk you put in there. So money you put in now will be withdrawable penalty free in early 2028. Money you put in next year would be able to be taken out without penalty in 2029.
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Feb 22, 2023 23:23
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I don't know if this is of any interest to anyone, but I actually bought too many I-Bonds in early 2022 (over the $10k limit). They sent me an email a few months later that it would be refunded to me but then nothing happened for > 6 months. They finally refunded it last month and surprisingly I got to keep the little interest that had accrued. I'm not going go try that again.
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Feb 22, 2023 23:26
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Nitrousoxide posted:Keep in mind with a Roth you can only withdraw it penalty free after the money has been sitting in there for 5 or more years. And that's for each chunk you put in there. So money you put in now will be withdrawable penalty free in early 2028. Money you put in next year would be able to be taken out without penalty in 2029. The five-year rule you're thinking of doesn't apply to regular contributions, which are what prompted this thread of conversation. Regular contributions can always be taken out whenever without taxes or penalties. Sources: baroque IRS publication, simpler H&R block article.
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Feb 23, 2023 00:18
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Nitrousoxide posted:Keep in mind with a Roth you can only withdraw it penalty free after the money has been sitting in there for 5 or more years. And that's for each chunk you put in there. So money you put in now will be withdrawable penalty free in early 2028. Money you put in next year would be able to be taken out without penalty in 2029. Contributions always come out first and are penalty/tax free. Simple. Next are conversions, as occurs with a backdoor Roth IRA, and these can be pulled out after 5 calendar years have passed from the conversion (doesn't matter what day during the year it occurred, it's treated as occurring on January 1st of that year). To make things even more bewildering, converted pre-tax and converted after-tax funds are potentially treated differently. If you've only been doing backdoor Roths though, this is all after-tax and fairly straightforward. Finally are earnings. These have the added caveat that both under or over 59.5 years old, you can be hit with a penalty if your oldest Roth IRA account has been open for less than 5 years.
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Feb 23, 2023 00:51
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Subvisual Haze posted:Roth IRA withdrawals have very intricate rules, and even better you're expected to track this stuff yourself in the event you need to pull money out All the more reason to have a proper emergency fund with a some or all of it in a boring place like a savings account. Or any other of the number of good options in this non-zero rate environment. I have thankfully only needed to use my emergency funds once, but when I did, things weren't exactly going well and I'm glad I didnt need to think about it at all.
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Feb 23, 2023 01:31
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I regard my Roth IRA as a deep-level emergency fund. Do not break glass unless an immediate beloved family member is being held for ransom or such.
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Feb 23, 2023 02:16
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Would have to be a very beloved family member IMO.
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Feb 23, 2023 02:29
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With all this about the different rules for withdrawals based on the source of money... am I supposed to be keeping those records? I have a Roth and Traditional IRA that were rolled over to a small brokerage from a previous job's 401k, then transferred to a Fidelity IRA. So far it's just the 401k rollover and earnings (which I would have a tough time distinguishing!), but I was considering putting $6k from 2022 in there before April. Does it make more sense to open a new IRA account to keep the sources of funds separate?
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Feb 23, 2023 03:35
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The various referenced rules only apply if you're trying to pull money out of your Roth IRA before age 59.5 (which you shouldn't do unless a very beloved family member is being held for ransom). After age 59.5 (and assuming you've had your Roth IRA open for 5 years) you can pull money out at any time and at any amount tax/penalty/worry free. The current meta in US retirement savings is trying to stuff as much money as possible into a Roth IRA possible, not withdraw it. It cannot be overstated just how valuable having money that is completely free of taxes in growth and withdrawal is. So for the most part, disregard this minutiae, keep socking money into that IRA.
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Feb 23, 2023 03:56
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truavatar posted:With all this about the different rules for withdrawals based on the source of money... am I supposed to be keeping those records? Opening a new IRA wouldn't accomplish anything, the Feds consider all IRAs as being part of one giant IRA for purposes of tax stuff. If your income is below the MAGI limit for contributing to a Roth IRA, it doesn't matter much, just contribute freely.
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Feb 23, 2023 04:41
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pmchem posted:
Just put me out of my misery now, jesus loving christ
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Feb 23, 2023 10:24
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Subvisual Haze posted:The various referenced rules only apply if you're trying to pull money out of your Roth IRA before age 59.5 (which you shouldn't do unless a very beloved family member is being held for ransom). After age 59.5 (and assuming you've had your Roth IRA open for 5 years) you can pull money out at any time and at any amount tax/penalty/worry free. That makes sense, thank you. Would be lovely to retire before 60, but unless college for 2 kids suddenly becomes free, I can't imagine it. Subvisual Haze posted:Opening a new IRA wouldn't accomplish anything, the Feds consider all IRAs as being part of one giant IRA for purposes of tax stuff. If your income is below the MAGI limit for contributing to a Roth IRA, it doesn't matter much, just contribute freely. I meant does it make sense for my own recordkeeping... since my current IRA account has only a single source of funds (401k rollover), it seemed like it'd be easier to keep track of direct contributions in a second account.
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Feb 23, 2023 12:14
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Unsinkabear posted:Just put me out of my misery now, jesus loving christ Its a poll of Bloomberg readers, a company who's flagship product is a $20k/year chat app. It is not even close to a representative sample. The median household net worth of US householders 65 years and older is $300k (and less than $100k if you exclude home equity). Median retirement account balance for the same group is $150k. (source)
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Feb 23, 2023 16:59
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drk posted:Its a poll of Bloomberg readers, a company who's flagship product is a $20k/year chat app. It is not even close to a representative sample. To be fair those median households are supremely hosed
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Feb 23, 2023 17:01
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Sure, but if you live an in inexpensive location, have a paid off house, and most importantly, get $20k/year in social security payments, its certainly doable. Its not really the same scenario for working age people living in expensive areas who can currently barely afford to rent and expect to get $0/yr in social security.
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Feb 23, 2023 17:18
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