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I have a question that's sort of TFSA vs RRSP related, and also involves a pension. Currently I make about $4100 gross per month, plus an additional $400 in benefits. After tax and pension deductions, I have about $3000 net each month. Each month I contribute $275-$300 into the pension. If I stay in (I'm military) for another 24 years (until I'm 47), I'll get a pension of at least $60000/year, adjusted for inflation and all that. If I leave before then, I'll get my contributions back with some interest. On top of this I currently deposit $200/month into a TFSA mutual fund. There's about 5 grand in there right now. I also pay $350/month on a student loan with a current balance of $9800 at 5.5%. First of all: Should do I need to contribute to more retirement savings on top of that pension? This is a Canadian government military pension, I'm quite confident it will pay out. I think the only reason I wouldn't get it is if I release from the Forces. Even if I do, I'll get all of my retirement savings I contributed back. Should I use that $200/month going into the TFSA to pay down my student loans faster? Or use it to save for a house? Second: If I keep extra retirement savings, should I be using a TFSA or an RRSP? As far as I understand, that pension would count as taxable income, so using an RRSP wouldn't really make sense for later down the road. My plan was to pay off the student loan, and then use that extra money to max out my TFSA each year, and use that as my only extra retirement savings. Any other long-term savings would go towards a house. Does that seem reasonable?
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Jan 25, 2013 03:09
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Freeze posted:I have a question that's sort of TFSA vs RRSP related, and also involves a pension. TFSA vs RRSP is very reminiscent of Roth vs 401k. The question comes down to: tax the money before it goes in, or when it comes out? If you're in a traditional progressive income tax structure (not subject to AMT in the US), it comes down to your marginal tax rate now versus what you think the marginal tax rate will be when you take the money out. Part of it is gambling on how you think tax laws will evolve, and part of it is how much money you think you need to live on in retirement. Accounts that use post-tax dollars (Roth, TFSA) are great when you're starting out in your career or making relatively little money; accounts that lower your income now and are taxed when pull the money out (Trad IRA, 401k, RRSP) are more useful when you're in your prime earnings-wise. Numerically, the money in the account will gain or lose at the same rate, it just depends on which end the tax is higher as to which you'll do better with. The reason that people get confused is because pre-tax dollars are not worth the same thing as post-tax dollars. If your marginal rate is 26%, every dollar you put in post-tax is worth putting in $1.36 pre-tax; every dollar you put in pre-tax is worth $0.74 post-tax. So when people compare $5k in one plan versus $5k in another, the cost of that $5k is not the same.
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Jan 25, 2013 03:42
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Engineer Lenk posted:The reason that people get confused is because pre-tax dollars are not worth the same thing as post-tax dollars. If your marginal rate is 26%, every dollar you put in post-tax is worth putting in $1.36 pre-tax; every dollar you put in pre-tax is worth $0.74 post-tax. So when people compare $5k in one plan versus $5k in another, the cost of that $5k is not the same. I never thought of it this way before. Well, at the very least, I guess should continue with the TFSA until I make more than my pension will end up being.
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Jan 25, 2013 04:01
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Freeze posted:I never thought of it this way before. How do you figure your pension will be worth "at least" $60k when you're making ~$50k a year?
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Jan 25, 2013 04:09
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Fraternite posted:How do you figure your pension will be worth "at least" $60k when you're making ~$50k a year? The military works on a pretty rigid pay structure. This time next year I'll get a 5k/year raise, the year after that will be ~19k/year raise, every year after that will be something like $2k/year raise. My pay will top out at around $120000/year in today's dollars (unless I'm exceptionally successful and get promoted further). If I retire after 25, I'll get 50% of that as a pension.
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Jan 25, 2013 04:20
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I wouldn't rely on a pension being 100% there for you. Worker's rights are on the decline and you can't get OAS until 67 now. The military is more secure than other public sector, sure, but I wouldn't bank on any federal government to not gently caress with anything you rightly deserve at least once before you retire. It only takes one dickhead politician or bureaucrat to decide, in peacetime, that the military doesn't need a whole slew of guys making $120g + that nice pension. That's also assuming you never hit a point where you can't take another day of this job, pension be damned. My general policy when it comes to relying on public-funded assistance is plan for the worst and everything above that is a bonus.
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Jan 25, 2013 16:12
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reflex posted:My general policy when it comes to relying on public-funded assistance is plan for the worst and everything above that is a bonus. This sounds like a good plan, something I'll try to follow even though I live in Finland, where there are extensive programs. They too, are on the decline though. So planning for the worst now would be planning for a total or almost total collapse of those programs. (But in all likelyhood they'll stay, but better safe than sorry.)
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Jan 25, 2013 16:44
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I have a question! Here's my goal: reduce my expenses and/or reduce my debt. My ultimate goal is to get out of debt and continually be building my savings (me and everyone else in the world). My situation is that I have an "extra" $600 in my bank account and until my employer gets me my W-2, all the 2013 tax estimators tell me I'll be receiving ~$600 in a federal refund (I'm gauging this by my 2011 income at a conservative estimate... I hope). Even though I don't have the total dollars (yet), I'm trying to plan ahead. I have 2 maxed-out credit cards I'd like to see get to $0 asap (which, when I get to the numbers, will look like "indefinitely"). I'd also like to get an emergency savings account to $3000 asap (something I don't have ...yet. I have auto insurance which I can have paid off completely with these dollars and some left over. I also make car payments, but any extra money I put against it now, I won't see the benefits until 2014. Oh, and my savings account is effectively $0 -- I moved in November, got a new phone/plan in December, and to top it all off, I was ill this month (my annual January sickness) and had to take off a week, so the few hundred bucks I had leftover after moving and getting a new phone/plan went away to bills etc. More info: I currently work 5-6 days/week as a waiter where I net about $1400-2000/mo. My monthly budget, which includes variable expenses such as food, gas, money for going out, and small amount of regular weekly savings (~$60/wk), totals $1775. I'm starting to get some more freelance work, which, if you're familiar with that, comes with a Net 30 on my invoices. So I'm gradually increasing my income, but doesn't come with the instant gratification of waiter tips. This is one reason I'd like to have space in my monthly budget. I understand having a good base in my savings of at least $1000 is recommended, but for the past 2 years I've basically been going through cycles of saving plenty of cash in the fat months and spending it in the lean ones, rinse and repeat. To give you an idea of what this looks like, I'll save $400-700 over a couple months, then I do some car maintenance, business gets slow, I have to go to a funeral or graduation for a couple days, etc, and it goes away. Then business picks up, life is less eventful and I'm back to putting money in the bank. Since I haven't been in a position to really make headway on my CCs, I've been in the practice of paying my CCs and then using them to pay bills (bad, I know), since I knew that during the lean times I would just pay my bills with them anyway. Right now I'm near the bottom of one of these lean cycles on the downward slope, and I'd like to make good, long-term use of extra cash I don't usually have. I always pay my bills on time (a little extra, even, if I can afford to) and I always have food on my plate, so I'm not in any real dire straits, I just want to get some poo poo in line. (I just don't always have the cash to go to the bar or restaurant or movie, and sometimes I don't have 3 different kinds of cheeses in my refrigerator.) Before I get into my thoughts and ask for opinions, here're the numbers: code:One more note: My CCs got maxed out 2 years ago when I moved 1000mi (Oregon to SoCal). I had the cards at around 50% balance, but when I transferred restaurants from Oregon to CA, they didn't give me as many hours as I had been working before moving, and the job hunt hasn't been too kind to me until recently. Idea 1: Put the lion's share ($1000) against CC #2. This should reduce my payments to around $30. It's not much difference in making a dent in budget reduction, but it reduces my card balance from 100% to 53.5%. I could continue to make payments of $60, gradually reducing that debt. In the fatter months, this would be easy to do, even to pay $100 or more against it. It's steering clear of using it in the leaner months that concerns me, but then, a $30/mo payment is what I've basically been making the past couple years. I'd probably just cut up the card if I went this route. Idea 2: Pay off the rest of my auto insurance. I would have an extra $120/month to pay off debt or to save, and could kick-start either one with the remaining ~$400. Idea 3: Split the money between my insurance, CC #2 and savings. My insurance would be paid off by March if I use $600 toward that and I would have a small cushion in savings and a decent start against my credit card. Are any of these ideas good? Any thoughts? I may have blow my situation out of proportion with this huge post, but maybe not, I just prefer to paint the fullest picture possible. Subjunctivitis fucked around with this message at 03:08 on Jan 26, 2013 |
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Jan 26, 2013 02:46
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Subjunctivitis posted:Idea 1: You mentioned establishing a $1000 emergency fund, which is step #1 in the The Debt Snowball outlined in the OP. If you're anticipating fat/lean months, add some cushion to the emergency fund to see you through. If you have an emergency and dip into the fund, put your other plans on hold until you have replenished it. At first, it's not an easy feeling, having that much money just sitting around but for some people it keeps their spending in check. I personally did "Idea 1" over and over several times, using credit as crises arose. I only really got traction when I started a cash emergency fund. Other suggestions: 1) You should definitely shop for cheaper insurance. I know CA is expensive but $120/month is a killer for you. Is there a "pay in full" discount? If you paid the whole thing off now, would it save you money or just eliminate the payment? Also, see if your insurance policy will add towing. You may be able to get it for ~$7/mo instead of $40 for AAA. 2) If you're not yet locked into Sprint you may want to look at Boost. They use the same towers and are even cheaper. My wife pays $55/mo for unlimited talk/text/4G. 3) Most importantly: Increase your income, stat. Find a job at a fancier restaurant, bartend in the evenings, or really start hustling for freelance work. An extra $1000/mo could have you free and clear by Halloween.
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Jan 26, 2013 05:04
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MrKatharsis posted:You mentioned establishing a $1000 emergency fund, which is step #1 in the The Debt Snowball outlined in the OP. If you're anticipating fat/lean months, add some cushion to the emergency fund to see you through. If you have an emergency and dip into the fund, put your other plans on hold until you have replenished it. At first, it's not an easy feeling, having that much money just sitting around but for some people it keeps their spending in check. I personally did "Idea 1" over and over several times, using credit as crises arose. I only really got traction when I started a cash emergency fund. Thanks for the reply! Re phone plan: already locked in. Regarding insurance: I just switched from Progressive to AAA. I used to contact my insurance agent annually (upon renewal of my policy) to review any possible cheaper rates, and they hadn't found any. I randomly called AAA to see what their rate was, found they saved me $300/yr, and switched. I was paying $148 w/ Progressive and now I'm paying $108+interest on balance w/ AAA. I also have a speeding ticket which disappears in September of this year. For some reason the interest charge on my unpaid balance wasn't made clear to me until I got a letter I got earlier this month that basically said "this is how it's gotta be now." So, 2 things, yes, there is a "discount" for paying in full (i.e. no more interest charged) and as I keep making insurance payments, every month I will see a steady decline in the amount I pay (since my remaining balance will be smaller each month). This is one reason why even paying a larger chunk on the remainder of my premium sounds like a good option to me. Being insured w/ AAA means I am also a member, so I have towing and some emergency services -- at $40/yr membership it breaks down to $3.33/mo. The way AAA works is that they charged me a minimum of 15% of my premium for initiation and then they prorate the remaining balance over 9mos (10mos of insurance payments for 12mos of coverage -- this really appeals to me, in addition to being a non-profit). My insurance initiation was only $38 more than my original insurance rate, so it's not like it was a huge lump out of pocket. Part of the cost of my insurance is the fact that I own an SUV ('02, so MPG really sucks). I use the hell out of it, though -- I haul poo poo around all the time and I get out of the city whenever I can. One of the upsides is that whenever I sell a piece of furniture, I can offer delivery, which is a small but helpful charge (gas in the tank, lunch with the gf). However, and this ties into the point of getting a new job, the restaurant I work at is 12 mi from where I live. In other words, it costs me ~$6/day just to go to work. This is one big reason to look for a new job. To put this into financial perspective, I work 5-6 days/wk, which means I average $122/mo just getting to-and-from work. Regarding jobs/increasing income: Like I mentioned in my first post, I've been looking for other employment since I moved here, but, obviously, no go so far -- resumes, interviews, nada. I started looking for freelance work this same time last year, but the well was pretty dry. The past several months I've gotten a few jobs which have given me an extra $200-400/mo, with the exception of Nov/Dec (dead seasons for photo work). Unfortunately, Nov/Dec are supposed to be big money months, but they weren't at my restaurant this year. This month I've gotten a couple full-days and a couple half-days, which is better than the few one-offs I had in Fall '12. So far I've made $1100 doing freelance and $0 at another job. Since photography is my career track, I'm focusing more heavily on finding more freelance work this year. The biggest reason I wasn't so rigorous last year was because I expected to move to LA sometime in the Summer, but then a car repair to pass smog and a lean month later, no more savings. Then I started looking for more freelance work and doing some networking in the fall. That said, I'm not ruling out replacing my current job with one closer to home, nor am I ruling out an additional job. My efforts-to-achievements ratio is superior as regards to freelance vs. new job. In fact, tonight I'm putting together some marketing materials. I know that I can find easier/simpler/whatever financial stability if I put my efforts into looking for another job and get one, but those are McJobs, where doing my freelance is a career move. Again, I'm not ruling a second/replacement job out (that's on Feb's to-do list), but I'm obviously fine with some amount of instability/financial goofiness if my career choice involves freelancing. I've definitely weathered some storms, I'm just looking for a way to make some of the tough decisions I'll be facing this year a little easier (i.e. "Do I upgrade this/get new equipment, or do I stash the cash?"). Since you echo the OP, I'm starting to seriously consider the $1000 savings cushion, but touching my savings comes with the same problem as touching a CC when problems come around. That's my reason for cutting up my CC if I put my extra cash against it. Also, it just seems that as soon as I start getting a decent sum in the bank, it ends up having to go away pretty soon. Though that might just mean I'll need to get an online savings that's unconnected to my checking. It would take my mind off of eventually getting a decent savings and I would be able to focus on my debts. tldr: I'm already locked into a phone plan; insurance is cheaper if I pay it off and I already reduced it by $20+/mo; I'm gradually getting more freelance work but not completely ruling out a replacement/second job.
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Jan 26, 2013 06:35
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What other monthly payments do you regularly have? Do you have things like cable? Netflix? Hulu? Spotify? Those kinds of things? Posting a full monthly budget including all things you have to make payments on may help. How energy efficient are you? You'd be amazed how much money you can save a month by being mindful of how much electricity you are using. I've had friends who live in smaller, newer apartments than myself, and pay almost 4 times as mush as me in electricity. Not to bump my own thread, but are there any plasma centers around you? It's an easy way to make a couple extra hundred a month if that's an option. I know there are quite a few in the socal area. Is public transportation an option for you? $180 a month for gas sounds like a lot to me. GAYS FOR DAYS fucked around with this message at 07:17 on Jan 26, 2013 |
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Jan 26, 2013 07:11
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I'm glad we have the penny pinching thread now: http://forums.somethingawful.com/showthread.php?threadid=3529425 The main thing I always suggest is cutting out the TV if you have it, unless you have to watch sports or can't wait to see breaking bad on Amazon, which I understand completely. Reading "The Millionaire Next Door" really helped me get into the frugal mindset  "What do you mean you can't take this coupon? It's only been expired for a week! so if you think that part of your problem is being an impulse shopper I definitely recommend picking it up, there's also an audiobook version if you prefer that.Edit: And yes, it's probably at the library. Sephiroth_IRA fucked around with this message at 18:47 on Jan 26, 2013 |
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Jan 26, 2013 14:43
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Not sure if this belongs in the investments thread or not: Has anyone here used betterment.com? I saw an ad on mint.com and did some research; it seems to get good reviews everywhere that I can find. They charge 0.31% for automatically rebalancing your portfolio (say 20% bonds, 80% stocks) using various index funds. I've been meaning to get into personal investments in addition to my company 401k and this seems like a good way to do it. Does anyone feel like telling me why this is stupid?
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Jan 26, 2013 15:36
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Orange_Lazarus posted:so if think that part of your problem is being an impulse shopper I definitely recommend
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Jan 26, 2013 16:33
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SwashedBuckles posted:Not sure if this belongs in the investments thread or not: Doesn't look stupid to me at all, but for instance if you want the 80/20 portfolio you could get it in a single fund (VASGX) for 0.17% instead of paying 2-3x as much at betterment. If I'm reading right - 0.15-0.35% to betterment plus ~0.2% to the underlying ETFs. I don't use ETFs so I don't know, but maybe betterment is offering a pretty good price for the transaction costs? Probably depends on the details of your situation. Here's someone else doing a similar thing with a slightly different price structure: https://www.wealthfront.com/
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Jan 26, 2013 19:03
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SwashedBuckles posted:Not sure if this belongs in the investments thread or not: It's not bad if you don't want to do the rebalancing yourself. I believe you can connect turbo tax to it as well so all the tax info will be taken care of which I'd imagine is necessary rebalancing so often. Also, the signup bonus they're doing will take care of the fees for the first year or longer depending on the balance. Harry fucked around with this message at 19:38 on Jan 26, 2013 |
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Jan 26, 2013 19:24
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Subjunctivitis posted:I currently work 5-6 days/week as a waiter where I net about $1400-2000/mo. My monthly budget, which includes variable expenses such as food, gas, money for going out, and small amount of regular weekly savings (~$60/wk), totals $1775. I'm starting to get some more freelance work, which, if you're familiar with that, comes with a Net 30 on my invoices. So I'm gradually increasing my income, but doesn't come with the instant gratification of waiter tips. This is one reason I'd like to have space in my monthly budget. I understand having a good base in my savings of at least $1000 is recommended, but for the past 2 years I've basically been going through cycles of saving plenty of cash in the fat months and spending it in the lean ones, rinse and repeat. To give you an idea of what this looks like, I'll save $400-700 over a couple months, then I do some car maintenance, business gets slow, I have to go to a funeral or graduation for a couple days, etc, and it goes away. Then business picks up, life is less eventful and I'm back to putting money in the bank. If your high/low income months aren't predictable, I would try to budget to the lowest common denominator, as close as possible - either by slashing things from your budget or by picking up more dependable McJobs to up the consistent income. If you can balance this, you won't have to live off of savings ever, and all the income above your minimums can be earmarked towards goals: basic emergency fund, paying off CC debt, full emergency fund, and beyond. E: with regards to phonechat, if you go prepaid or no-contract through something like boost or page plus, you can keep a smartphone and change plans month-to-month as finances or your talk/text/data needs dictate. Engineer Lenk fucked around with this message at 19:56 on Jan 26, 2013 |
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Jan 26, 2013 19:52
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Phone chat: Virgin Mobile has a really cheap talk/text/data plan. $35/month for 300 minutes & unlimited text/data. You do have to buy the phone, but I think they have pretty cheap ones available. Mai boyfrand uses the phone even less than I do, so he has a prepay plan through verizon where he fills it up with cash every once in a while, and it costs him a couple cents to text, no data, and phone minutes are quite cheap (EXCEPT that every day that he uses the phone, it's $2. Once he's used it once, he can use it unlimited times that day. Since he uses the phone like once a week at most, it works out.).
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Jan 27, 2013 01:25
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Eggplant Wizard posted:Phone chat: Virgin Mobile has a really cheap talk/text/data plan. $35/month for 300 minutes & unlimited text/data. You do have to buy the phone, but I think they have pretty cheap ones available. Mai boyfrand uses the phone even less than I do, so he has a prepay plan through verizon where he fills it up with cash every once in a while, and it costs him a couple cents to text, no data, and phone minutes are quite cheap (EXCEPT that every day that he uses the phone, it's $2. Once he's used it once, he can use it unlimited times that day. Since he uses the phone like once a week at most, it works out.). If your boyfriend wants a cheaper option, page plus has an $80 card that lasts a year (piggybacked off the verizon network, so he can probably use the same phone). Text messages are 5 cents send/recieve, voice is 4 cents/minute. If he uses the phone once a week, this will save him $20 only considering the activity fees. Page plus is poo poo for people who use data, but pretty cheap for talk/text.
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Jan 27, 2013 03:30
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monsieur fatso posted:What other monthly payments do you regularly have? Do you have things like cable? Netflix? Hulu? Spotify? Those kinds of things? I watch Hulu on the Computer and we have a streaming Netflix account (the $9 one for the three of us). No cable television. Internet is $40/mo split 3 ways. We split a $90 elec bill, which is higher than the $20 I was paying when I lived alone. The main differences are that we have in-unit laundry (I spent about $16/mo in quarters for laundry, so I'm already saving $6), we have a dishwasher and our range is electric instead of gas. But we do have a microwave now, which is good for reheating and making tea, etc. Public trans is an option, but unless I get another job where I can work nights, and move my current job to working days, the cost doesn't really even out. My restaurant closes after transit stops running, and I work most shifts at night. Basically, transit would cut $50 out of my gas budget, but at the cost of not being able to not work longer shifts. Thanks a ton for the plasma thread. I steered clear of plasma donating b/c I was remembering (incorrectly) that you could only donate once a month according to a friend of mine who used to donate. I could theoretically increase my income up to 10% with that. Orange_Lazarus posted:Reading "The Millionaire Next Door" really helped me get into the frugal mindset "What do you mean you can't take this coupon? It's only been expired for a week! so if you think that part of your problem is being an impulse shopper I definitely recommend picking it up, there's also an audiobook version if you prefer that. Thanks! I'm always interested in different savings tactics. And I'm definitely not an impulse buyer, my budget allows me to live modestly, though comfortably -- good food at home, decent services, and some extra cash to do something fun once in a while. For example, as a practice, I do my shopping at Trader Joe's, Sprouts and Food 4 Less for certain items I frequently purchase for price and selection, eg. Trader Joe's is far better with their cheese selection and prices, at around $1 or so cheaper per lb, than Sprouts (and definitely Ralph's or Vons). Wanna know how boring my purchases are? The next item on my list is a roll of stamps. The last item I bought was an N-router to replace my 5-years-old-and-failing G-router.  ------------------------------------ Again, I'm not really interested in micromanaging my budget right now (sorry if my long posts confuse the heart of the matter), otherwise I'd be in the budgeting thread (there are some things I noticed that should be reworked -- "$5 extra here and $10 extra here? Why not just lump that $15 towards one thing?"). Like I said, my bills get paid, and I just have some extra cash I want to use to either knock down my credit card, kickstart a savings, or something. Once that's done, I can set some new goals and build a new budget accounting for whatever route I've taken. At that point. I'll probably pop back in here or the Budgeting thread or wherever and say "Here's the new budget with goals X and Y in mind! Whaddaya think?" (I will post my current budget for fun, if someone really wants to see it and hack away at it.) I'll reiterate my original question though: I have ~$1200 extra and want to do something w/ it. Do I put it into my as-of-now nonexistent savings account (something that builds up over a couple months, then goes away over a couple months)? Do I put it against my higher-interest credit card which has been maxed out for 2 yrs? Do I pay off the $750 remaining on my car insurance so I can do something with the extra $120/mo? Do I split it up between any of these things in any way? I can think of plenty of other ways I'd love to spend it (new computer, camera lens, other miscellaneous photo equipment, a vacation, new clothes...), but I'd prefer to take other more responsible steps.
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Jan 27, 2013 04:56
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This was in Bloomberg--it's basically an income flow chart, depicting where you should be using your savings money. Not perfect for every situation, but a good all-around idea. (loving huge) 
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Jan 27, 2013 22:03
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PRADA SLUT posted:This was in Bloomberg--it's basically an income flow chart, depicting where you should be using your savings money. Not perfect for every situation, but a good all-around idea. There is a cleaner version here. http://www.businessweek.com/articles/2012-12-20/the-financial-planning-flowchart#r=auth-s
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Jan 27, 2013 22:20
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My local credit union has offered fantastic interest rates on their checking+savings accounts (nearly 1%! Not bad for an account that can also be used to write checks), but starting this year they're slashing the maximum amount of money eligible for these rates down to $10k. Since the gravy train is out of steam, what are some of the better things to do with money right now? Do any investment companies have particularly good money market funds right now? I already have a Roth IRA with Vanguard, should I just throw some money into an investment account with them?
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Jan 28, 2013 01:49
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The gravy train is out of steam everywhere, man. You can find rates around 0.8-1% on savings at a bunch of banks if it's worth the trouble to you (bankrate.com for a list; Ally is one that people seem to like lately). Personally I have sworn off rate-chasing, largely because the people offering the higher rates are not the member-owned banks and credit unions that I have found the most helpful and trustworthy over the years. Most of my cash is in a savings account right now at a pitiful 0.2%, but I'm confident that the rate will go up proportionately as economic conditions change, and that the bank isn't going to get sold/rebranded or go bankrupt.
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Jan 28, 2013 03:11
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PRADA SLUT posted:This was in Bloomberg--it's basically an income flow chart, depicting where you should be using your savings money. Not perfect for every situation, but a good all-around idea. Most of this makes sense but how does it make sense that your nest egg when you are 67 only needs to be 8x your annual salary? That seems ridiculously low
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Jan 28, 2013 03:35
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Jose Valasquez posted:Most of this makes sense but how does it make sense that your nest egg when you are 67 only needs to be 8x your annual salary? That seems ridiculously low Presumably the assumption is that you own property, so no mortgage/rent payment and will have vastly reduced living expenses compared to your prime earning years.
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Jan 28, 2013 03:57
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Jose Valasquez posted:Most of this makes sense but how does it make sense that your nest egg when you are 67 only needs to be 8x your annual salary? That seems ridiculously low I was also fairly intrigued by the idea of having 0.5x of your salary in retirement accounts by 30, 1x by 35, and 2x by 40. I hadn't seen those recommendations before and have been stewing on those figures. Are these generally accepted targets?
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Jan 28, 2013 04:29
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sweet_jones posted:I was also fairly intrigued by the idea of having 0.5x of your salary in retirement accounts by 30, 1x by 35, and 2x by 40. I hadn't seen those recommendations before and have been stewing on those figures. Are these generally accepted targets? I've heard of very similar targets before, so they don't look off the mark from what I've read. However, they make a lot of assumptions that may not hold true for everyone, so odds are you will have to save more (particularly if you're planning on taking time out of the workforce to travel or raise a family).
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Jan 28, 2013 04:59
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Jose Valasquez posted:Most of this makes sense but how does it make sense that your nest egg when you are 67 only needs to be 8x your annual salary? That seems ridiculously low A US centric answer is that 67 is a fairly late retirement age so I imagine they're factoring that into account - you'd be into Social Security and Medicare eligibility by then (assuming they still exist) and under those conditions you should be able to live at 8x salary. You wouldn't be doing trips around the world but you could eat and maintain a house and such. Most of the projections that call for a lot more than that have people retiring younger than 65, before a lot of government benefits kick in, and they definitely need extra savings mostly to cover that short time period of earnings gap. I'm assuming all of those numbers presume you're going to retire late, especially at the older ages. I wouldn't be comfortable with only 6 times my earnings at 60 if I actually wanted to retire then. More like 10-15 times.
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Jan 28, 2013 05:09
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Jose Valasquez posted:Most of this makes sense but how does it make sense that your nest egg when you are 67 only needs to be 8x your annual salary? That seems ridiculously low More is better, but I tend to shake my head when I see these money magazines tell people that unless they are retiring as millionaires, they are screwed. There is at least 10 times as much ink spent telling upper middle class and rich people how to save and invest more than there is helping poor/working class people who have nothing saved. I If you are retiring with 8 times your salary, you will be fine. As long as there are workers paying into social security, it will pay out some amount of money, you will have Medicare. 8x isn’t enough for you to travel the world playing golf for the next 20 years, but you will still have a lifestyle most of the world would envy. If you are that scared only having 8x, you can always work part time, but if you are debt free, you shouldn’t need to even do that.
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Jan 28, 2013 14:52
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It's probably partially a scare tactic for all the 50 year olds with $20,000 in their retirement accounts you hear about.
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Jan 28, 2013 15:02
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Zeta Taskforce posted:If you are retiring with 8 times your salary, you will be fine. But I would again note that this is very age-dependent. If you are retiring at 55 with only 8 times your salary (and no expected other sources of income like a company pension plan) you are screwed. The average person vastly underestimates the amount of money they will need to live without working for 30 years, especially as health care or long term care costs become more of a risk. And especially in a low interest rate environment like this. Still, as always the best hedge against retiring with too little is to spend less now. The less you get used to living on, the easier it will be to replace that income in retirement. And it will have the added bonus of you saving what you're not spending, so it works both ways.
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Jan 28, 2013 15:30
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Considering the average life expectancy, I figured saving enough to live until 75 years old was pretty good actually.
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Jan 28, 2013 15:36
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Lobok posted:Considering the average life expectancy, I figured saving enough to live until 75 years old was pretty good actually. Why? 50% of 65 year olds make it to 80 now or something like that.
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Jan 28, 2013 15:39
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Lobok posted:Considering the average life expectancy, I figured saving enough to live until 75 years old was pretty good actually. Do you really want to be in a situation where you have a 50% chance of one day saying "gently caress I better hurry up and die or I'm going to run out of money."
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Jan 28, 2013 16:04
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Lobok posted:Considering the average life expectancy, I figured saving enough to live until 75 years old was pretty good actually. Mortality is still improving for almost all demographics in First World countries, though it has started to improve less than expectations for some groups (meaning it was expected to improve 1% in 2011 but only improved 0.5% or similar - those numbers aren't real). There are a lot of questions about how that might change as other generations grow up with people falling on both sides, continuous improvement or a sharp decline, but right now unless you know you have a terminal illness or have a lot of hereditary factors in play, saving as if you will die before 75 is probably at best a coin flip.
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Jan 28, 2013 16:09
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Sophia posted:But I would again note that this is very age-dependent. If you are retiring at 55 with only 8 times your salary (and no expected other sources of income like a company pension plan) you are screwed. The average person vastly underestimates the amount of money they will need to live without working for 30 years, especially as health care or long term care costs become more of a risk. And especially in a low interest rate environment like this. If you are 55, earning $60,000 a year and you have the better part of half a million saved, of all the tragedies in the world, of all the horrible things that humans have experienced, telling this individual they might need to keep working for another decade or so…perhaps “screwed” is a strong word in this situation. I agree more is better, I’m all in favor of people saving and taking care of themselves, but let’s put this in perspective.
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Jan 28, 2013 16:22
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Zeta Taskforce posted:If you are 55, earning $60,000 a year and you have the better part of half a million saved, of all the tragedies in the world, of all the horrible things that humans have experienced, telling this individual they might need to keep working for another decade or so…perhaps “screwed” is a strong word in this situation. I agree more is better, I’m all in favor of people saving and taking care of themselves, but let’s put this in perspective. That only gives you $20,000/year ($1666 monthly) pre-tax to live on, assuming you die on your 80th birthday. That's a livable wage surely, if you don't have to pay rent. Investing the money could let you spend another 10-20 grand a year, but I'd rather spend my retirement doing cool stuff instead of sitting at home stressing about how my money is doing and waiting to die. I don't think you could retire with that and not go insane. You're basically making a low-wage pay cheque, but have all the time in the world to be bored and unable to do anything. Retirement should be a reward for all the smart saving and hard work you've done over your life, a time when you can do all the cool poo poo you never had time to do before. Retirement being just living paycheque-to-paycheque minus office hours sounds almost worse than working. reflex fucked around with this message at 16:55 on Jan 28, 2013 |
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Jan 28, 2013 16:45
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Zeta Taskforce posted:If you are 55, earning $60,000 a year and you have the better part of half a million saved, of all the tragedies in the world, of all the horrible things that humans have experienced, telling this individual they might need to keep working for another decade or so…perhaps “screwed” is a strong word in this situation. I agree more is better, I’m all in favor of people saving and taking care of themselves, but let’s put this in perspective. Well, yeah, everyone who even has the opportunity even to plan for retirement should definitely be counting their blessings but this seems like a weird perspective to try to have in a financial forum discussing financial issues. Retiring at 55 with $480K in the bank is better than going through the Holocaust or being a child soldier or growing up as a woman in an oppressive country, but almost everything almost every person reading this forum can or will personally experience is better than those things. Simply living, even as a homeless person, in the United States is better than those things. But from a retirement perspective, if that is your financial situation, it is a poor one and you are screwed with respect to your future life plans because you have not adequately assessed your needs. You need to keep working and saving before retirement can be a reality for you (though many people do not know this). I'm not trying to downplay that a lot of people are in situations where this isn't even possible to discuss, or say that isn't terrible, but where it is possible to talk about it I don't know why it shouldn't be talked about honestly. Buying a house you couldn't afford or having tens of thousands of dollars in credit card debt is also not as bad as a lot of things that happen in the world but it doesn't mean you aren't screwed until you address it. Maybe it's just a terminology issue, I don't know.
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Jan 28, 2013 16:48
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reflex posted:That only gives you $20,000/year ($1666) pre-tax to live on, assuming you die on your 80th birthday. That's a livable wage surely, if you don't have to pay rent. Investing the money could let you spend another 10-20 grand a year, but I'd rather spend my retirement doing cool stuff instead of sitting at home stressing about how my money is doing and waiting to die. And I agree. With half a million you could draw about $25,000 a year pretty sustainably, if you are collecting another $15,000 a year in social security, I don’t call that a tragedy, and you can survive reasonably comfortably. For myself I would want to do more in retirement than just survive. I want to travel, enjoy some nice things and have enough left over to support the causes I believe in. I want to have a paid for house and I will sacrifice now to make that happen. But I’m not going to spend my time worrying about people in first world countries who “only” have half a million dollars.
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Jan 28, 2013 17:01
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