mquinnjr
Footballguy
I am not Superfan #99 of the president, but bravo on this stand. Long time coming: http://www.reuters.com/article/2015/02/23/usa-fiduciary-idUSL1N0VX0P420150223
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Fantasy Football - Footballguys Forums
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PBS Frontline : The Retirement Gamble, sorta Must See (2 Viewers)
- Thread starter Smack Tripper
- Start date
wilked
Footballguy
If I understand correctly...General investment question, since this seems like the general investment thread.
I've been accumulating cash over the past few years. The majority of my "investable" dollars have gone into my 401(k) and Roth IRA. I've been holding cash in anticipation of an engagement ring (), wedding (
At this point, we've established our wedding budget and expected downpayment for a (currently non-existent) house. Ring is long-since purchased and out of the equation. I have excess cash above what I "need" to cover these two budgets + an emergency fund, but I'm not sure I have enough to really dip my feet into non-tax-advantaged investment account. My options, as I see it, would be to either (1) up my 401(k) contributions to the max and use this excess cash to cover the "shortfall" of what I would be losing in my weekly take-home, or (2) start an investment account. I kinda like option 2 because it provides flexibility of being able to cash in the investment should I need more for a downpayment or unexpected expenses, though I suppose I do have that flexibility in the Roth as well.
The questions: am I crazy for doing this while I am not currently maxing my 401(k)? And #2, what would you say is the minimum you should have before starting an investment account? I'm certainly a long-term low-expense-ratio Bogleheads-type investor; this will not be an frequently actively traded account.
You now have money saved for:
-Engagement Ring
-Wedding
-House for Family?
#### man, what is next, saving for tuition for the unborn children?
What is your timeframe for Engagement - House purchase? If it is < 2 years I would leave the money where it is (use any excess beyond that to max 401K) and once the dust settles after the house, reassess
Steve Tasker
Footballguy
I'm already engaged and wedding is pretty much set. Looking at a house in the next 12 months. I've decided to leave the cash as is for now. I was just laying out my reasoning for why I had so much cash to begin with.
wilked
Footballguy
Gotcha
Most people underestimate costs of wedding and home purchase so that excess may dry up quick, definitely leave it where it is until those things are done
Nah, he should use the wedding money for a fun end of tax season Vegas trip. Make the bride's family pay for the wedding (or have a super cheap wedding).
nlyhalfjoking:Obama's 2016 fiscal plan would eliminate backdoor roth
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=newssearch&cd=2&cad=rja&uact=8&ved=0CCYQqQIoADAB&url=http%3A%2F%2Fwww.marketwatch.com%2Fstory%2Fpresident-obamas-2016-budget-targets-retirement-accounts-2015-02-05&ei=FN_0VND8J8G1ggSjr4CYDg&usg=AFQjCNEghikG0r0o9tVVbWsSK1sDXDi_tA&sig2=MURigY_IPRnGCt292Ouo7w&bvm=bv.87269000,d.eXY
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=newssearch&cd=2&cad=rja&uact=8&ved=0CCYQqQIoADAB&url=http%3A%2F%2Fwww.marketwatch.com%2Fstory%2Fpresident-obamas-2016-budget-targets-retirement-accounts-2015-02-05&ei=FN_0VND8J8G1ggSjr4CYDg&usg=AFQjCNEghikG0r0o9tVVbWsSK1sDXDi_tA&sig2=MURigY_IPRnGCt292Ouo7w&bvm=bv.87269000,d.eXY
Dentist
***Official FBG Dentist***
I saw this. So few people I know a) don't qualify for the traditional roth and b) even know how to or bother doing the roth conversion.
I really can't imagine they are talking about very much money the government would get back someday.
I'll be disappointed when it goes, but really I kind of figured something like this would end.
Juxtatarot
Footballguy
I guess I don't have an issue with eliminating backdoor Roths.Tiger Fan said:
The change below, however, is terrible as the comment correctly states.
NutterButter
Footballguy
My head hurts reading this stuff. Can we just adopt the fair tax already?
All these finance/retirement threads are running together for me, but I think this belongs here. Just got finished meeting with my (fee not commission based) adviser. He enlightened me to something I was unaware of wrt 529s:
Obviously, I'm not an accountant, so consult your CPA - but let's say you have 2 kids that are going to college. You (probably advisable to do under a LLC) can purchase a house/condo/apt, etc yourself and have the kids pay rent to that LLC out of the 529 fund. So essentially, you're using money that has grown tax free to help pay off a mortgage on property. You could probably structure the mortgage loan type in your favor and really benefit. Depending on how many kids you have and how far apart and where they go to school, etc could be really swell and neato!
Anyway, just thought I'd share
Obviously, I'm not an accountant, so consult your CPA - but let's say you have 2 kids that are going to college. You (probably advisable to do under a LLC) can purchase a house/condo/apt, etc yourself and have the kids pay rent to that LLC out of the 529 fund. So essentially, you're using money that has grown tax free to help pay off a mortgage on property. You could probably structure the mortgage loan type in your favor and really benefit. Depending on how many kids you have and how far apart and where they go to school, etc could be really swell and neato!
Anyway, just thought I'd share
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wilked
Footballguy
Interesting concept...Let's put some numbers against it
Let's assume 30% tax rate and $1000/month rental, assume freshman lives on campus (so 3 year rental income)
3x12x1000 = $36000 that is 'laundered' through 529, maybe saving $10K in taxes. Multiply by number of children. Is that about right?
The balance of it is risk audit, of course (and repercussions should audit not agree with advisor).
Not trying to weigh in on legality of it, just trying to put my head around the 'carrot'
Let's assume 30% tax rate and $1000/month rental, assume freshman lives on campus (so 3 year rental income)
3x12x1000 = $36000 that is 'laundered' through 529, maybe saving $10K in taxes. Multiply by number of children. Is that about right?
The balance of it is risk audit, of course (and repercussions should audit not agree with advisor).
Not trying to weigh in on legality of it, just trying to put my head around the 'carrot'
I didn't check with CPA, but he mentioned he had clients who had done it in the past. Was just news to me, that's all. Seems like it would make sense.
I think the big carrot that you're paying "yourself" the $36000 rent vs. paying some other landlord. Make it a 2 or 3 bedroom place and have a few of the kids' friends as other tenants and you're really talking about something. Also need to weigh in on whether this in it of itself would be the driver on funding a 529 or not.
I haven't put the pencil to the paper, but when you factor this in with tax free savings for college in general; it makes the 529 a better option than on the surface
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NutterButter
Footballguy
I guess you're the one the neighbors call when your kid and friends throw an all night kegger? It does sound interesting though. I guess a big factor is whether you want to be invested in real estate. Me personally, I have no desire, but for other people that already are or desire to be, that's a nice chunk of money saved. Another factor would be if you can come up with the funds in addition to paying for college to pay for the down payment right?
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True, but I wouldn't be purchasing a place in the middle of the suburbs. I guess in my head I pictured a condo or whatnot close to campus that are chalk full of studnets. Granted, I went to LSU where there are 25k+ students, so entire complexes of students are common. But I understand it's not for everywhere.
Good points on the others, again...not for everyone.
Spin
Footballguy
I've never really looked at my 401k much once I set it up. I chose the plan that my boss at the time recommended, set the contributions at 5% and left it alone. About a year ago I asked here for some advice and it was pretty much to pay down all debt before looking at retirement.
We will have all credit cards and the car paid off after I make a payment this afternoon leaving us with just house and student loans as only debt.
Company matches 100% on the first 3% then 50% on the next 2%. So essentially I put in 5% they put in 4%. At the moment, I'm 100% in the plan marked with the giant arrow. Here are all my options for my 401k.
http://puu.sh/gyteg/0fe812efb7.png
http://puu.sh/gytfQ/31c3cc3e7d.png
We would like to up our savings to 10%. Should I just increase the 401k up to 10%? Maybe look at a ROTH IRA with the other 5%? Should I be choosing a different plan? We're also doing close to 3% into our HSA each paycheck, which is the max our company matches. Should I increase HSA before increasing 401k/Roth etc? Currently 29 and just had second kid.
Thanks, will hang up and listen.
We will have all credit cards and the car paid off after I make a payment this afternoon leaving us with just house and student loans as only debt.
Company matches 100% on the first 3% then 50% on the next 2%. So essentially I put in 5% they put in 4%. At the moment, I'm 100% in the plan marked with the giant arrow. Here are all my options for my 401k.
http://puu.sh/gyteg/0fe812efb7.png
http://puu.sh/gytfQ/31c3cc3e7d.png
We would like to up our savings to 10%. Should I just increase the 401k up to 10%? Maybe look at a ROTH IRA with the other 5%? Should I be choosing a different plan? We're also doing close to 3% into our HSA each paycheck, which is the max our company matches. Should I increase HSA before increasing 401k/Roth etc? Currently 29 and just had second kid.
Thanks, will hang up and listen.
Spin
Footballguy
Yes, but we should probably increase it. It's at 1k.
Should I stay in the 401k plan I'm in now? Keep doing 401k over Roth IRA?
inca911
Footballguy
Retirement account priorities are:
- Free money from 401(k) match
- Roth IRA
- Fill up 401(k)
By the way, Index funds with low charges are typically a safe investment option. Your boss might not be investment savvy....
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You should definitely increase that emergency fund.
I would go with a Roth for the portion over the match because those are some high-fee fund options. Open one at Vanguard.
Spin
Footballguy
The exact advice is "here's what I use, it's worked out really well for me so far". Which is why I come here for advice
0.65% is a high fee? What should I be looking for?
wilked
Footballguy
0.02% is what I would want for a fee%. 0.65% is poor, and > 1% starts to get into the 'high' arena.
You need an emergency fund for emergencies, especially as a homeowner. Some emergencies might be:
-Blown car engine
-need new roof
-need new heating system
-lose job for 3-6 months
I would want at least $10K personally
You need an emergency fund for emergencies, especially as a homeowner. Some emergencies might be:
-Blown car engine
-need new roof
-need new heating system
-lose job for 3-6 months
I would want at least $10K personally
Spin
Footballguy
http://puu.sh/gyteg/0fe812efb7.png
http://puu.sh/gytfQ/31c3cc3e7d.png
Here are my options. None of them are around the 0.02%.
Dentist
***Official FBG Dentist***
10 is just enough to get you warmed up, I'd be highly uncomfortable with anything under 50K, and really twice that is far more appropriate
Random
Footballguy
So pretty much anything not in a retirement/hsa/college savings?
I have a hard time defining this as well. Normally we keep a few months expenses in our checking, and have a few months expenses in a savings account. But we also have a lot of money available via HELOCs should we need it. Pretty sure we'd be covered for any emergency that might come up, but no way I would keep 100K in a checking or savings account ala dentist.
FUBAR
Footballguy
Again, this is why you put excess over the match into an IRA where you can get lower fee options.
He likely meant 0.2%. You could switch to the lower cost index funds in your account, then overweight international and REITs in an IRA where you can find much cheaper alternatives.
NutterButter
Footballguy
Dentist
***Official FBG Dentist***
5 to 8 k covers one emergency, so what happens if you had multiple emergencies back to back?FUBAR said:
I need enough money that if the worst case scenario happens I'm covered. Like car breaks down and I need a new car tomorrow and the same day my child is kidnapped and the ransom is 50k and at the same time the dishwasher breaks... And at the same time I've been out of work due to a broken arm but the disability insurance hasn't kicked in.
Frankly that 100k probably isn't enough in retrospect.
MCguidance
Footballguy
Not sure if this has been mentioned in the long thread, but in NJ, "Personal Finance" is now a public high school graduation requirement. It touches on most, if not all, of the things you mention.
NutterButter
Footballguy
inca911
Footballguy
0.65% is very high. Each year you are giving up that percentage on everything in the account. Every year. Just do the math and you'll be astounded. If you have a decent amount of $, you can get into Admiral Share Index Funds at Vanguard. We're talking as low as a 0.04% Expense Ratio in funds that track with the market. VINIX is an S&P 500 fund, with 15.5% return this year. Check the return on your current fund vs. the market and you'll see it's likely the same (or worse). Looking at your link, the Principal Global Investors fund is most equivalent and the one I'd chose, although a 0.18% Expense Ratio makes me question whoever is providing you with only those options. It's definitely worth looking into a move, if possible.Spin said:The exact advice is "here's what I use, it's worked out really well for me so far". Which is why I come here for adviceinca911 said:
0.65% is a high fee? What should I be looking for?
In your situation, I'd put in the 5% for the 401(k) free money, then I'd fund a Roth IRA. With the Roth IRA, you can pull your investment out at any time with no penalty. You should try NOT to use the Roth IRA as your emergency fund, but putting the dollars in and having to pull them out is better than not funding it and ending up without the potential Roth IRA benefits if an emergency never hits. I'd then bulid my non-Roth IRA emergency fund. Once that's in place (as you can see, the amount is a personal choice), then finish by fully funding the 401(k). If your company has an HSA or Cafeteria Plan, those should come before the non-matched 401(k), in most cases. I've made many earlier posts in this thread where you can see the Roth IRA benefits with supporting math plus other ideas. Best of luck!
IMO, the "Emergency Fund" needs to be risked based. Here's roughly how I do it:Walking Boot said:
Look at monthly expenses and strip out everything that isn't absolutely necessary. I look at this as if the absolute worst case scenario happened (wife and I both simultaneously lose our jobs). This is what we'd need to live on for 6 months. I make sure I have this on hand, accessible to me right away.
Now having said this, I'd like to bring up two points:
This is where the envelope method of saving is so important. Depending on what your monthly expenses are, and if you build up your envelopes appropriately (i.e. have the complete balance in the envelope prior to spending) - you can theoretically have enough money in your "discretionary spending" envelopes to cover your necessities in the worst case scenario. - this is what I do.
Every situation is different. My wife and I are in completely different industries with completely different skill sets; so I think the chance that we'd both lose our jobs and be w/o employment for 6 months is extremely slim. Also, given our education, skill set, networks, etc - I'm confident we would have some way to create income in the meantime until permanent employment was available.
Also, you need to understand your medical benefits, disability coverage, etc. This all factors in to how much "emergency savings" you need.
NutterButter
Footballguy
Do you consider unemployment insurance? You get 600 per week per unemployed person here in nj. That's over 5k/Month for Wife and I for 6 months.
FUBAR
Footballguy
Tiger fan wrote it well.I'm not putting money in a checking account in case my kids are kidnapped but if that does happen I have enough for a plane ticket and a go pro to make Taken 4.
If my car breaks down, I'll run or bike to work. If my wife's van breaks down she'll take my car. We rent so the house risks are minimal.
I'm at virtually zero risk of losing my job. If my arm breaks, not really an issue.
Worst case scenario, hell breaks loose? I might have to sell stock at a loss but that's extremely unlikely. But it's likely that cash loses meaning in that scenario.
All that to say I think you overestimate the likelihood of worst case scenario And the need to hedge against it.
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Random
Footballguy
Dentist
***Official FBG Dentist***
FUBAR
Footballguy
Dentist
***Official FBG Dentist***
True... if they kind of just got taken away it would move my retirement date up YEARS
Doctor Detroit
Please remove your headgear
FUBAR
Footballguy
mquinnjr
Footballguy
Another article from the same source on the history behind the shift from Defined Benefit pension plans to Defined Contribution 401k plans, good read for historical perspective: http://www.nbcnews.com/business/retirement/great-401-k-experiment-has-failed-many-americans-n327321
FUBAR
Footballguy
it is, but I always dislike reading stuff like this:
Why would retirement not be a personal responsibility?
Retirement is a privlege, not a right.
Is this really much different than: But shifting the responsibility for buying a car from employers to individuals has proved problematic for many American workers, particularly in the face of wage stagnation and a lack of car buying expertise. For them, the grand car owning experiment has been a failure.
You're right...but it is a mindset that needs shifting. Without the right "teaching" or "financial upbringing" (lack of better words), there is a clear misconception on what retirement actually looks like
KCitons
Footballguy
Just like a drivers license . Shouldn't people get two or three chances at retirement? Everyone makes mistakes.
