financial planning time?

[g6civcx]

It's around that time of the year again. Can we start a new thread for this year?

My retirement goal right now is $1,000 per month, adjusted for inflation, and no debt. I figure $1,000 is a pretty good life if all I have to do is buy food and health insurance. Maybe a few extra things like clothing and transportation, but it's not absolutely necessary to survive.

The cost for a single life annuity with inflation adjustment and immediate payout for me is about $500,000.

That means if I had $500,000 today and no debt, I can retire and get $1,000 per month until the day I die.

As I get older the cost will go down because I won't be alive much longer. By the time I turn 40 it will only cost about $250,000 to get $1,000 a month for life.

So how do you know how much to save for retirement?

[midnight zenki]

Good topic, I have little insight but would like to hear others plans/formulas for doing so.

What type of private IRA's/401k's people have set-up and what type of contributions are being made would be helpful.

[ronmcdon]

My plans are far more short term right now.
Trying to save $800/month for a down-payment on a (fixer-upper) condo.
Hoping to get something within the $250k range within the end of next year.
That's really more on the modest end in terms of Los Angeles properties.

[exitspeed]

I have a financial planner. He's worth every penny IMO. Honestly I'm not good with money and really neither is my wife. We have a lot of goals to work through until we retire including saving for retirement and having enough money to continue the same lifestyle, save for our child's college, and pay off our home and all other debt. There's quit a few other things along the way as well but those are the most important to us.

[g6civcx]

What type of private IRA's/401k's people have set-up and what type of contributions are being made would be helpful.

We can start by learning the correct terminology to help you communicate properly so you can get the help you need.

US Code Title 26, Section 401, Subsection k allows "private" companies to manage a retirement plan for its employees. That's where the name comes from.

The term "private" vs. "public/government" means that if your organization is not part of a government body, then your organization is a "private" organization.

So unless you work for the government, your company is "private" and you will have a "401(k)" plan. Government employees have their own plan and it's not called a 401(k) plan.

I think you're asking about an "individual" vs. "group" plan.

Any plan administered for 2+ people is a group plan. An "individual" plan is administered for only 1 person.

The term "Individual Retirement Account" (IRA) refers to any plan that is for you and not part of a larger organization.

You have two types of IRAs: traditional IRA and Roth IRA.

Traditional IRA is like 401(k) for tax purposes. Roth IRAs are treated different for tax purposes.

You need to ask about IRA adminstrators since I think this is what you want.

Your employer administers the 401(k) so you don't have a choice except to go with your own traditional IRA.

There is no comparable employer plan for the Roth IRA so you will have to look for your Roth IRA administrator. Sometimes your 401(k) vendor will cut you a deal on your Roth IRA as well so check with them.

[0wn3r]

We can start by learning the correct terminology to help you communicate properly so you can get the help you need.

Your employer administers the 401(k) so you don't have a choice except to go with your own traditional IRA.

There is no comparable employer plan for the Roth IRA so you will have to look for your Roth IRA administrator. Sometimes your 401(k) vendor will cut you a deal on your Roth IRA as well so check with them.

Well, that's false for starters...

There are a number of financial retirement calculators out there to use. I will not tell you which one to use, but I would suggest playing with a couple and learning what the numbers mean.

Truthfully, I am not sure why you would want the bare minimum at retirement, but it depends what age you expect to retire. If this isn't until you're 80, then I suppose you won't want to be traveling or golfing alot! You may want to consider any shelter, non-covered medical expenses, service-aids (be it your money hungry wife, maid, lawn care etc.)

If you are young and expect to be in a higher tax bracket at your retirement, I would suggest investing in a Roth 401 if your employer offers it. Whatever you do in your 401, if your company matches to a certain percent THEN GO TO THAT PERCENT AT A MINIMUM. For example if your employer says they will match 60% of the funds you put in up to 6%, then you should invest 6% at a minimum...this is FREE MONEY. (assuming you stay with the employer long enough to become vested)

Take spare money and invest in the stock market...the idea is to have fun with it and not be stressed if you lose it. There are books out there on how to invest in the stock market so I won't blab on that.

Just remember what Einstein supposedly said, "The most powerful force in the universe is compound interest". So the more you put in today, the more you'll get in the end...and the numbers can be drastically different.

[g6civcx]

Well, that's false for starters...

I would suggest investing in a Roth 401 if your employer offers it.[/I]

You are correct in some respects. The Roth 401(k) offers post-tax contributions, but the contribution limits and forced distributions are different than Roth IRA. There really isn't anything comparable to the Roth IRA.

But why do you recommend Roth 401(k) over traditional 401(k)?
Take spare money and invest in the stock market...the idea is to have fun with it and not be stressed if you lose it. There are books out there on how to invest in the stock market so I won't blab on that.


Why do this instead of contributing the "spare" money into an IRA and invest in the market that way? You save on taxes.

[325irollin]

I have 10k in the 401k that was with my previous company. Haven't started one with new company yet. I'm currently saving 1500+/month but that'll mostly be used for traveling the world (my life goal) and I will probably start saving for a house. I'll be dead by 35....

[0wn3r]

You are correct in some respects. The Roth 401(k) offers post-tax contributions, but the contribution limits and forced distributions are different than Roth IRA. There really isn't anything comparable to the Roth IRA.

But why do you recommend Roth 401(k) over traditional 401(k)?


Why do this instead of contributing the "spare" money into an IRA and invest in the market that way? You save on taxes.


What are you talking about?! What advantages does a Roth IRA have that would outweigh the advantages of the Roth 401? There's only minor benefits which I would not even consider as a benefit, for example the flexibility to touch your money before you retire...but the whole point of a retirement account is to NOT TOUCH IT. You may be able to invest in different places with an IRA, but the 401 is generally a well-chosen portfolio and on top of that, like I said, your employer may match a % of what you put in. The contribution limitations are worse on a Roth IRA than a Roth 401 (though they may actually be removed in 2010)

Again, I would only recommend a Roth 401 over a traditional 401 if the individual assumed they would be in a higher tax bracket at retirement. If you really have no idea, in my opinion I see no harm in investing 50/50. I don't do this myself, but I think it would be interesting as heck. The same theory applies to your decision between Roth IRAs and traditional IRAs.

I say to invest "spare" money into the stock market because you have no penalties for when you need it. My opinion is that you should be contributing money to your retirement and play with anything else. You should never play with money you'll need in the short term. For example, if you have money set aside to purchase a house, you would not want to put it all in the stock market a short time before you go to buy a house because it can drop within that time. Stocks are still meant for long-term growth, so areas like this may be better suited for savings accounts, or short-term 'fail safe' growth accounts.

You may save on taxes if you put your spare money in there to begin with, but the idea is that you are using short-term money that you can move around how you like and remove whenever you'd like in an emergency without penalty (aside from trading fees :/ ). There are other ways to invest as well such as ETF's.