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EugeneJ posted:Temptation to play with that money must be strong. It's another thing I like about fun money taxable accounts at places like Vanguard or Wealthfront. Basically you directly own the assets in the brokerage account with multiple levels of protection such as account SIPC insurance, so there's no risk of shenanigans. The somewhat dangerous thing is known as rehypothecation(custodian "borrows" assests) or in the above horror a case of outright embezzlement of 401k funds held in trust by the custodian. 
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Jun 22, 2014 05:08
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EugeneJ posted:So I've decided to not do the 401k through my employer for a few reasons: I'd like to present some arguments for why you should always use a 401k, even if it is lovely. You said you have 10k/year to invest. You have two options reasonable to do this: Option 1: You put 5k/year in an IRA and 5k/year in lovely 401k with match) Option 2: You put 5k/year in an IRA and 5k/year in taxable The only way option 2 makes sense if if the reduction in fees offsets the lack of matching and tax benefits. Let's assume you get 8% growth and pay 1.5% fees in the 401k and 0% fees in IRA and taxable. Option 1: 5k/year in an IRA and 5k/year in lovely 401k with match) Yearly Contributions: IRA: 5k, 401k: 5k + 3k match IRA yearly gains: 8%, 401k yearly gains: 6.5% (8% - fees) 30 account value: $566,000 (IRA) + $691,000 (401k) = $1,257,000 Option 2: 5k/year IRA 5k/year taxable Yearly Contributions: IRA: 5k, Taxable: 5k IRA yearly gains: 8%, Taxable yearly gains: 8% (with a 15% capital gains tax on the tail end) 30 account value: $566,000 (IRA) + $501,000 (Taxable) = $1,067,000 Bottom Line: You are leaving about $200,000 on the table by not using your company 401k. Also, consider that you can always move a bad 401k into a good IRA after leaving your job. You hinted that a job change may be in your future. If you don't use your 401k you are giving up tax space forever to save a few bucks in fees.
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Jun 22, 2014 05:11
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Velochis posted:I'd like to present some arguments for why you should always use a 401k, even if it is lovely. No I didn't, I just said I'll have $10,000/year in excess money. I can retire off $300,000 in savings without playing the market - that's fine for me. I don't like "assumed gains" or any kind of assumption. Retirement should be about certainty. What scares me is the poor souls I work with who have no savings and are planning on retiring with $40,000 in their 401k. I tried to explain Expense Ratios to my co-worker who's nearing retirement and he just kind of stared at me like I was speaking French. He's the same one who refreshes the Yahoo stock ticker every 5 minutes to see if his fund went up or down. I do not want to be that guy. Ever. EugeneJ fucked around with this message at 05:32 on Jun 22, 2014 |
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Jun 22, 2014 05:29
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EugeneJ posted:No I didn't, I just said I'll have $10,000/year in excess money. I can retire off $300,000 in savings without playing the market - that's fine for me. I don't like "assumed gains" or any kind of assumption. Retirement should be about certainty. Good call on not wanting to be pushing 60 with less than 100k saved up. It's a horrible place to be really. Can you elaborate by what you mean by not liking "assumed gains"? I'm taking that to mean you will save for retirement in cash rather than 'playing' the market? No matter type of savings you choose to invest in (saving account/CD/stock market/real estate etc.) you are taking some kind of risk with an assumed reward for bearing that risk. It is impossible to remove uncertainty in retirement savings. Even if you save 100% in cash you run the risk of inflation killing the purchasing power of your dollar. You could diligently save what you think is enough to retire on, and then have the buying power of your hard earned warchest eroded by inflationary forces completely outside your control. In general the further up the risk scale you slide the more reward you can expect to earn for compensation in bearing the risk. Over a short time frame (like the 60 year old with 40k who is banking on a stock market upswing) the risk may be too big to bear. However, if you have 20+ years until you need the money you are all but certain to gain money by investing in the stock market for a long period of time. The 8% gains I quoted come from the history of the stock market. Some years it gains far more (2013 it gained around 30%) others it dips (2008 for example saw losses of 50%). However, if you ignore the short term variability and focus on long term gains you will come out ahead. I'd encourage you to read up on the topic. The OP has a great reading list. For a solid introduction to stock investing take 20 minutes and read JLCollins Stock Series.
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Jun 22, 2014 06:04
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Velochis posted:Good call on not wanting to be pushing 60 with less than 100k saved up. It's a horrible place to be really. Can you elaborate by what you mean by not liking "assumed gains"? I'm taking that to mean you will save for retirement in cash rather than 'playing' the market? John Hancock's planner has this dumb card that says if you're 25 and put away $150/month you'll end up with $1,500,000 in retirement. And then of course in fine print at the bottom it says "*assuming 2% annual salary increase and consistent 8% return on investments". Neither are realistic for a majority of people. quote:No matter type of savings you choose to invest in (saving account/CD/stock market/real estate etc.) you are taking some kind of risk with an assumed reward for bearing that risk. What is at risk in a savings account? The rate of return could go down, but you never risk losing anything you put into it.
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Jun 22, 2014 07:19
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Saving for retirement in cash is dumber than your coworkers who don't understand expense ratios.
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Jun 22, 2014 07:52
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EugeneJ posted:What is at risk in a savings account? The rate of return could go down, but you never risk losing anything you put into it. You carry two types of risk by having your money in cash. 1.) Inflation risk: You have 100k in cash and I have 100k in stock (ownership in companies). Say we experience very high inflation to the point where 100k in nominal dollars has the purchasing power of 30k from before the inflation. The stock market tends to grow at at least the rate of inflation, so my 100k is now worth 300k+ (same purchasing power as the prior 100k + some extra real growth) while your 100k is now worth 110k or so based on the terrible rates they give savings accounts. Again, you have ZERO control over the world economies. All you can do is try to protect yourself from various risks. 2.) The very, very real chance of not having enough money to ever retire. Let's suppose we both decide we need 1 million to retire. If we both invest 10k a year I will reach 1 million far faster than you because I have the magic of compounding interest on my side. Furthermore, when we begin to draw down our portfolios my 1 million will last far longer than yours because it itself earns money. Often a healthy portfolio will generate more money than a retiree draws per year! Whereas you are hitting the principle every time you withdraw. Every year you keep money in cash you are literally losing money in after inflation terms. If inflation is 2% in a year and your saving account paid .5% then you are actually losing money every year. You will never have enough money to retire! Having 100% cash means you will take longer to save and you will need far more to comfortably retire. It will never work out. You said yourself that you could save 300k after a career of working (10k/year). THIS IS A PITIFUL AMOUNT TO HAVE AS A GOAL. YOU WILL EAT CAT FOOD. In 2040 300k will probably be worth the equivalent of 100k in today's dollars. Even if you draw a frugal 30k per year then your lifetime of saving will only allow you to have three years living expenses after 30 years of working. For your own sake, you really have to learn about investing. Read the stock series I linked earlier, and read some of the books in the OP. Once you feel you have a handle on the business of investing come back in this thread and we will help you build a balanced portfolio.
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Jun 22, 2014 08:21
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Hey so, Roth IRA question: I already contributed my 5500 for this year...I'm going to start earmarking money for next year's contribution, but I feel like I should be doing something with it. I'm using a Vanguard targeted retirement fund...should I just buy that fund with my contribution allocation, then transfer it to the Roth IRA at the start of the year? Or should I be contributing to the Roth IRA during the year so I hit my limit at the end of the year instead?
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Jun 22, 2014 09:01
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the poi posted:Hey so, Roth IRA question: I already contributed my 5500 for this year...I'm going to start earmarking money for next year's contribution, but I feel like I should be doing something with it. I'm using a Vanguard targeted retirement fund...should I just buy that fund with my contribution allocation, then transfer it to the Roth IRA at the start of the year? Or should I be contributing to the Roth IRA during the year so I hit my limit at the end of the year instead? I've asked the exact same question before. A few people chimed in and the general consensus I got was... the potential losses or gains are not significant enough either way "make a difference". I personally save my money in a savings account, and max it out every January 1st.
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Jun 22, 2014 11:07
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Saving for retirement with just 10k cash per year is the dumbest thing I've ever heard. Yes sometimes the stock market goes down, but as long as inflation is a thing it will ultimately go up faster than inflation on a long timeline. Cash will only depreciate. When your timeline gets shorter as you age, you switch to more conservative asset ratios. That dude with 40k doesn't have 40k because the market is hard. He has it because he's invested like 4% and sometimes not even that and probably has taken 401k loans.
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Jun 22, 2014 13:37
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Nail Rat posted:Saving for retirement with just 10k cash per year is the dumbest thing I've ever heard. Yes sometimes the stock market goes down, but as long as inflation is a thing it will ultimately go up faster than inflation on a long timeline. Cash will only depreciate. Also, he probably panic sold to a 'safe' cash fund in 2008/2009 and re-bought at the end of last year. 
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Jun 22, 2014 14:17
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Nail Rat posted:That dude with 40k doesn't have 40k because the market is hard. He has it because he's invested like 4% and sometimes not even that and probably has taken 401k loans. The average balance of everyone in our company is $38,000. So it's not just him. With a big company like Nike, the average portfolio balance is $110,000: http://www.brightscope.com/401k-rating/405383/Nike-Inc/410700/401K-Savings-And-Profit-Sharing-Plan-For-The-Employees-Of-Nike-Inc/ quote:1.) Inflation risk: You have 100k in cash and I have 100k in stock (ownership in companies). Say we experience very high inflation to the point where 100k in nominal dollars has the purchasing power of 30k from before the inflation. The stock market tends to grow at at least the rate of inflation, so my 100k is now worth 300k+ (same purchasing power as the prior 100k + some extra real growth) while your 100k is now worth 110k or so based on the terrible rates they give savings accounts. Again, you have ZERO control over the world economies. All you can do is try to protect yourself from various risks. This is assumption. The stock market could crash in the decade before your retirement and you're completely hosed. quote:2.) The very, very real chance of not having enough money to ever retire. Let's suppose we both decide we need 1 million to retire. If we both invest 10k a year I will reach 1 million far faster than you because I have the magic of compounding interest on my side. Furthermore, when we begin to draw down our portfolios my 1 million will last far longer than yours because it itself earns money. Often a healthy portfolio will generate more money than a retiree draws per year! Whereas you are hitting the principle every time you withdraw. I live off $10,000/year in expenses now, and that includes student loan payments which will not be there in 5 years. My social security payment will be at least $1000/month. I'll be fine.
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Jun 22, 2014 14:21
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EugeneJ posted:This is assumption. The stock market could crash in the decade before your retirement and you're completely hosed. Except that you wouldn't be hosed unless you're an idiot. It shouldn't even matter if you're retired as you should be diversified into safe assess like bonds that can carry you through the crash. If you're this worried about a huge market crash that we apparently never recover from why aren't you equally worried about hyper inflation that would destroy the cash reserves you saved.
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Jun 22, 2014 14:30
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Good point about inflation - I should probably dump my excess money into I Bonds. I have some old ones worth about $2000.
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Jun 22, 2014 14:39
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EugeneJ posted:The average balance of everyone in our company is $38,000. So it's not just him. This is because most people put in next to nothing, stop contributions when times are tough and take out 401k loans for things they don't really need, not because 401ks don't gain value over time. Nail Rat fucked around with this message at 15:04 on Jun 22, 2014 |
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Jun 22, 2014 15:02
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So I'm leaving my company in two weeks, I have a pretty small 401k with Fidelity (like 1.5 grand in it, since I'm losing the non-vested portion), what should I do with this now? I have no other retirement investments yet, as I've been focusing on paying down debt instead.
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Jun 22, 2014 16:04
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100 HOGS AGREE posted:So I'm leaving my company in two weeks, I have a pretty small 401k with Fidelity (like 1.5 grand in it, since I'm losing the non-vested portion), what should I do with this now? I have no other retirement investments yet, as I've been focusing on paying down debt instead. As most everyone will tell you here, roll it over to a Vanguard (Roth) IRA and stick it in a Target Date Fund.
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Jun 22, 2014 16:10
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ETB posted:As most everyone will tell you here, roll it over to a Vanguard (Roth) IRA and stick it in a Target Date Fund.
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Jun 22, 2014 16:12
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Do I need to have a Roth open first or will the amount in my 401k be enough to open it by itself? I guess that's the real question I was asking, since I already knew the answer you guys were gonna give me.
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Jun 22, 2014 16:19
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100 HOGS AGREE posted:Do I need to have a Roth open first or will the amount in my 401k be enough to open it by itself? I guess that's the real question I was asking, since I already knew the answer you guys were gonna give me. You'll be able to do the rollover directly into a new account. Note that if you roll over into a Roth, you will pay taxes on the 1.5k as if it were directly earned income. If you're in the 25% tax bracket or higher, you'd probably want to do a conversion to a Traditional IRA, but you're in the 15% bracket so the Roth tends to make sense. Then, get that Roth maxed out this year!
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Jun 22, 2014 16:57
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EugeneJ posted:The average balance of everyone in our company is $38,000. So it's not just him. 100 HOGS AGREE posted:Do I need to have a Roth open first or will the amount in my 401k be enough to open it by itself? I guess that's the real question I was asking, since I already knew the answer you guys were gonna give me. I thought your new job was at the same company but a different contract? Nail Rat posted:This is because most people put in next to nothing, stop contributions when times are tough and take out 401k loans for things they don't really need, not because 401ks don't gain value over time. baquerd posted:You'll be able to do the rollover directly into a new account. Note that if you roll over into a Roth, you will pay taxes on the 1.5k as if it were directly earned income. If you're in the 25% tax bracket or higher, you'd probably want to do a conversion to a Traditional IRA, but you're in the 15% bracket so the Roth tends to make sense. Then, get that Roth maxed out this year!
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Jun 22, 2014 17:10
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EugeneJ posted:I live off $10,000/year in expenses now, and that includes student loan payments which will not be there in 5 years. My social security payment will be at least $1000/month. I'll be fine.
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Jun 22, 2014 17:41
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moana posted:Jesus christ. How can you be so arrogant and so stupid at the same time? And how are you only saving $10k a year if your expenses are $10k? How can anyone who doesn't trust the stock market trust in social security? My head is about to explode. I'm waiting for him to say that instead of pure cash he's buying into all gold, because it's a guaranteed inflation hedge, right?
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Jun 22, 2014 17:49
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ETB posted:As most everyone will tell you here, roll it over to a Vanguard (Roth) IRA and stick it in a Target Date Fund. Yeah not to mention cashing out means you get hit my a host of government extra taxes for early withdrawal, even small amounts make sense to rollover into something like a Vanguard IRA.
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Jun 22, 2014 17:59
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moana posted:And how are you only saving $10k a year if your expenses are $10k? My takehome pay is $23k after health insurance premiums and taxes. I'm a minimalist - it's fun. If I live happily like this now, I'll be fine this way when I retire. SiGmA_X posted:Did you just slam a 70yr repeatable assumption AND say you're counting on social security in the same post?? And skipped over risk of your plan to nitpick. Go lease a car and don't sweat it, man! As for the Smart Car... 
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Jun 22, 2014 18:15
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EugeneJ posted:My takehome pay is $23k after health insurance premiums and taxes. I'm a minimalist - it's fun. This is the first time I've seen a meme in this thread... I don't like it.
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Jun 22, 2014 18:16
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EugeneJ posted:This is assumption. The stock market could crash in the decade before your retirement and you're completely hosed. You get 4% match to 5% salary, right? Assuming you stay in long enough to vest, the market would have to poo poo itself almost 45% before you lost any principal, and that's assuming fees keep you strictly at zero gains. Then it has to completely fail to recover for the length of your retirement. If you're genuinely concerned about that, you don't need to save cash; you need to spend it on long-term food stores, backed up by precious metals investments in copper, brass, and lead, because that's a lead-up to some serious Mad Max kind of apocalypse.
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Jun 22, 2014 18:20
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EugeneJ posted:My takehome pay is $23k after health insurance premiums and taxes. I'm a minimalist - it's fun.
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Jun 22, 2014 18:30
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Yond Cassius posted:You get 4% match to 5% salary, right? Assuming you stay in long enough to vest, the market would have to poo poo itself almost 45% before you lost any principal, and that's assuming fees keep you strictly at zero gains.
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Jun 22, 2014 18:31
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Are there any life insurance policies worth getting into? I have a term policy at work that covers my salary (at no cost to me), but my folks were telling me about an old plan they have that has a high cash value. Like most annuities, I'm guessing a lot of them are scams these days.
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Jun 22, 2014 19:30
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EugeneJ posted:Are there any life insurance policies worth getting into? I have a term policy at work that covers my salary (at no cost to me), but my folks were telling me about an old plan they have that has a high cash value. Why do you need life insurance? Seems like you have no one dependent on you. How much is your rent to have $10k/year spending? even if you rent is like $500, that's half right there. Food has to be a couple hundred a month. Plus ongoing necessities (e.g. household goods, clothes, etc). Do you have a cellphone and/or internet? Also what is your plan regarding medical expenses? Single trip to the ER could end up costing 6 months of your expenses.
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Jun 22, 2014 20:04
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SiGmA_X posted:I thought your new job was at the same company but a different contract?
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Jun 22, 2014 20:19
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EugeneJ posted:I live off $10,000/year in expenses now, and that includes student loan payments which will not be there in 5 years. My social security payment will be at least $1000/month. I'll be fine. The chance that Social Security won't exist in 30 years is greater than the chance that the stock market doesn't beat inflation over that period. EugeneJ posted:This is assumption. The stock market could crash in the decade before your retirement and you're completely hosed. The stock market crashed 6 years ago. It is now at an all time high. If you didn't panic and withdraw your funds like a moron, then you would be doing just fine. If you're actually in retirement, only a minority of your portfolio should be in stocks, so you'd be fine. This is what people mean when they talk about asset allocation. The stock market has beat inflation for every period of 25+ years since at least 1920 . A savings account is all but guaranteed to lose out vs inflation over 30 years. Which of these investment strategies sounds like it will make you completely hosed for retirement?
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Jun 22, 2014 21:59
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ChipNDip posted:The stock market has beat inflation for every period of 25+ years since at least 1920 . Another way to think about it is: what if you had private ownership of the companies that make up the stock market? As in, if you were a super-rich master of the universe and fully owned all of the companies in, say the S&P 500. Those companies, collectively, have posted a profit every year for 143 years. This is an astoundingly strong result - especially since the last 20 or so of those years have been subject to accounting funny-money writedowns that have greatly increased the variance of earnings reports, and yet the S&P has still reported a profit every year. Sure, the value that people are willing to give you in exchange for ownership of those businesses fluctuates wildly for [insert short-lived reasons here] but in the long run, you still make money. Short of glorious communist revolution / the end of the world / governmental collapse (all of which likely result in you getting a bullet in the back of your head, and your cash is worthless too) you can't really lose in the long run.
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Jun 22, 2014 22:50
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I'm starting to think eugeneJ is trolling us.
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Jun 22, 2014 23:04
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Velochis posted:I'm starting to think eugeneJ is trolling us.
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Jun 23, 2014 01:06
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Velochis posted:I'm starting to think eugeneJ is trolling us. Not to mention in retirement you can have hefty medical expenses thanks to the clever US for profit model. etalian fucked around with this message at 01:48 on Jun 23, 2014 |
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Jun 23, 2014 01:37
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100 HOGS AGREE posted:Haha no that was my "promotion" earlier this year, the one that didn't get me any more pay or anything. I'm completely leaving my company and going somewhere else. EugeneJ posted:Are there any life insurance policies worth getting into? I have a term policy at work that covers my salary (at no cost to me), but my folks were telling me about an old plan they have that has a high cash value. Velochis posted:I'm starting to think eugeneJ is trolling us.
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Jun 26, 2014 18:40
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Maybe I'm just gullible but I don't think he's trolling us. I base that on having met and conversed (until I start to get really angry) with multiple aquaintences and coworkers and such who have exactly the same opinions. There is a deep and underlying mistrust of corporations, finance, and wall street that has really gotten ahold of a lot of people. Some of them were involved in Occupy, some are tea partiers, but most of the ones I have spoken to are just generally ignorant of how it all works, and fearful that they will be taken advantage of. Combine that with a certain amount of paranoia about corporate overlords (not rising to the level of conspiracy theories necessarily) and you get a lot of people who believe, very earnestly, that the only way to be safe is to have cash. These folks usually don't understand how inflation eats up their savings... or if they do, they rail against it as though inflation itself is due to incompetence or malice by the FED, Obama, Wall Street, capitalism in general, etc. In America we have a powerful and abiding myth of the rugged individual, personal responsibility, and "freedom" defined as being left alone, for good or ill, to sink or swim. Investing can seem to run counter to that mythology, because it involves placing one's financial future into the (confusing and inscrutable) hands of faceless, powerful entities beyond one's control. There are people who would rather live in abject poverty, then permit someone else to touch their hard-earned money (that they have so little of). It's sad, terrible, and mostly due to really really poor financial education in this country. I don't know if any of the above describes eugeneJ accurately, but I wouldn't be surprised if it does. EugeneJ, I'll just say this. If you're being honest with us, and not trolling, then it's clear that your intuition about relative risks is inaccurate and misleading you. You are over-estimating the risk of market losses or underestimating the risk of inflationary losses, or both. You are also probably discounting the risk of personal disability when deciding how much to plan to retire on - when you are healthy and young, it can be difficult to understand how easily one can become unable to work, or unable to be self-reliant, and how little the government safety nets actually provide for you. You are right to believe that investing (which, since you seem confused about this, does not mean putting 100% of your money into the stock market) is uncertain and carries risk. There is no guarantee that you will make money. But the overwhelming evidence and the math says that the risk of a conservative, well-diversified long-term investment portfolio is much, much lower than the near-certainty of inflation steadily grinding your savings into worthlessness. You need to read some of the books in the OP and use knowledge rather than intuition and hearsay to make smart decisions about your financial future. You will not get suggestions otherwise in this thread, so if you are not open to hearing this, you may have to seek advice elsewhere. Leperflesh fucked around with this message at 02:05 on Jun 27, 2014 |
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Jun 27, 2014 01:58
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Or I have a NeoCon family member who's administrator of my 401k and is good friends with my NeoCon boss, and both are guilty of doing terrible things to people (paying below minimum wage, infidelity) while they share cocktails at the country club and blame Obama for high taxes. gently caress em both. I suggested switching from John Hancock to Vanguard when talking with the head of HR - we'll see what happens.
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Jun 27, 2014 02:10
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