When did you start saving for retirement?

[NeverlandClub23]

I started at 19, I'll be 24 in a couple of weeks. I started with 2% in my 401(k) and now have 10% of my gross income going in annually. I have always been very concerned with being able to retire and live comfortably. You could live 20-30 years in retirement which would cost alot of money. And I figure, if something happens to me and I don't get to use that money, then someone I love gets to have it. And that's almost as good as spending it on myself. But I also save extra money in other accounts so that if I am able to retire between 50-59 1/2, I won't have to take money out of my 401(k).

 

[dvcgirl]

Reading all the post over on the budget board about finances has really got me worried.


I will be 23 soon and I don't have a retirement account set up (no IRA or 401k), I have a small savings, less than $10k more than $5k but that's it, well not really, their is money for the house we are buying but that doesn't count.

Should I set up an IRA? I'm debt free, same for SO, should I set up one for her too, or should I have just 1 for us?

So when did you start worrying about retirement?

Ahhhh....you are but a child. . You have plenty of time to save, but *Yes*...get started! With all of those marvelous years of compound interest in front of you.....you'll be able to save less because you're getting such a wonderful head start! You and your SO should each have your own....you'll save more that way .

There are some great new investment vehicles out there for retirement saving within your IRA. They are called Targeted Retirement Funds. T Rowe Prices fund just got a nice review in Kiplinger's magazine. Vanuguard also has Targeted funds, but they tend to be a little more conservative in nature. Both T Rowe Price and Vanguard have among the lowest fees in the industry (a good thing....the less you pay in fees....the more your money works for you!).

The cool thing about these funds is that you simply choose your end date, which for you would be around 2045. The fund managers will then adjust the fund so that it moves from being fairly aggressively invested early-on (when you are young and can handle the risk), to fairly conservative as you reach your retirement date. Too many people simply choose funds for their 401Ks or IRAs and then just forget about them.....or aren't savvy enough to make changes, or just aren't interested in making changes. And there's nothing wrong with that, honestly, most people find this stuff quite boring. The beauty of the Targeted Retirement funds is that all of this is done for you.....

But you shouldn't worry....even *thinking* about this at your age places you lightyears ahead of most of your peer group.

You should get your feet wet and do a little reading about personal finance. Knowledge is power here. One book I'd recommend to you...and it's a nice easy read. Smart and Simple Financial Strategies for Busy People by Jane Bryant Quinn. I've also read that you are buying a house....this goes into all sorts of mortgage issues, insurance, investing. It's a short book and it's not boring at all! Good luck to you!

 

[dvcgirl]

Thanks for the advice. Okay, roth IRA or IRA? I read about it through my bank (Navy Federal) but i'm still confused as all get-up.

What are the pro's and cons?

You need to do some reading, but basically, an IRA or a 401K is pre-tax investing....it comes off the top before Uncle Sam gets his cut. This money is then *invested* within that IRA or 401K in things like mutual funds. The money grows tax free, but is taxed when you withdraw it after age 59.5. Take it out before then and you pay a hefty penalty.

A Roth IRA is after-tax dollar investing...meaning, Uncle Sam got his cut already, and once invested within that Roth IRA, the money grows tax free and is *withdrawn* tax free after age 59.5 penalty free. Roth IRAs rule, however if you can participate in a 401K through work and your employer matches a portion of your contribution....you should put money there first. Up until the point that your employer matches. And then, once you reach that point, switch back and start investing in the Roth. Do this year in and year out and you'll do just fine.

So basically, you open up an IRA and then you choose where the money within that IRA is invested. Again, I'd recommend you do some reading, but index funds and targeted retirement funds are good solid bets over the long run.

I saw you mention an ING account....that's a savings account. That's not where retirement savings goes. All retirement savings needs to be invested year in and year out........and left alone. You can put your emergency fund in that ING account, or the money you're saving up for a vacation...but the retirement money doesn't belong there. Hope this helps.

 

[etwinchester]

I use to have one while in my 20's, but then I left the job to have DD and took out the money to do things around the house. We also did that with DH's 2 jobs when he was laid off.

Boy, do I wish I could turn back time...but you can't worry about the past, so I'm looking forward to doing things right in the future.

We're consolidating some bills to give us some extra $$, which will also help out with my new career path. Once DH is at his job for one year in October, he can cantribute to a 401K. I may have to start out with like 4% but will increase it later when our financial outlook gets better.

My advice, start now! I hope to teach my DD well. You never understand what your parents try telling you through life until you have to live it. Then you wished you listened...

 

[icebrat001]

Thanks for all the replies.

I will get a book. But in the mean time, the first step is to open up an IRA and then once some money gets into the account, invest that money within the IRA account? Like with an IRA share certificate or something, mutual fund? I'm a bit afraid of stock, I'm not much of a risk taker.

 

[dvcgirl]

Thanks for all the replies.

I will get a book. But in the mean time, the first step is to open up an IRA and then once some money gets into the account, invest that money within the IRA account? Like with an IRA share certificate or something, mutual fund? I'm a bit afraid of stock, I'm not much of a risk taker.

Yes, start reading. You need to be more familiar with some of these investment vehicles before you start investing. You should be afraid of *individual stock*....stock in just one company. But stock mutual funds are lots and lots and lots of different stocks all within one fund. That is called diversification....meaning that you don't have all of your eggs in one basket. But you can't be too afraid of risk....not at your age. Over time, nothing beats the performance of the stock market. You just need to be sure that you are diversified, and that's what things called index funds will do for you.

You open an IRA and then the money you put into that account will need to be invested. Think of an IRA as an umbrella that provides a certain protection to the money that you place under that umbrella. An IRA allows you to place the money in there tax free.

But I do recommend that you do a little reading about the other items I mentioned....index funds and or targeted retirement funds.

 

[birdiesunshine]

My family believes in saving but we do a lot of things. Don't keep all your eggs in one basket. Bonds for daughters college. Traditional 401k with an employer match. Roth iras and stocks that pay a dividend that you can reinvest. Just remeber that although you save money now and the money will generate interest the cost of inflation is rising also. If you save 500 a month for 30 years average out to about 7% some years better some worse you probably could accumulate 400,000. What will 400,000 be worth in the year 2036. Not much. Needless to say we save a lot more its depressing but you have to do it. I'm 35 and in 30 yrs I would be 65. Probably if I'm healthy live another 15 years that 400,000 divided by 15 would be 26,500 a yr and then figure on being taxed. Granted you would still get interest on the unused money but what is 26,500 in the yr 2036 gonna do for anyone.

 

[birdiesunshine]

Just one more thing most all of our investments are split between pre and post tax roughly 50/50 so the number of 400,000 might be a little higher if your non taxed investments return a higher rate of interest but then you will be taxed on them we you draw on them and taxes are going up every year. So although you might be in a lower tax bracket when you retire the tax rate might be higher anyways. This whole thing really depresses me because I would love to not save and have a new car every year like my friends who have no savings. I would also like a bigger house but I save instead. Depressing . My friends say that there house will be there retirement and I say I'm glad I'm not there kids when they kick the bucket. They will leave a bill not a will. Hopefully as my investments grow I can scale back on the monthly deposits to these things but it wont be anytime soon.

 

[dvcgirl]

Just one more thing most all of our investments are split between pre and post tax roughly 50/50 so the number of 400,000 might be a little higher if your non taxed investments return a higher rate of interest but then you will be taxed on them we you draw on them and taxes are going up every year. So although you might be in a lower tax bracket when you retire the tax rate might be higher anyways. This whole thing really depresses me because I would love to not save and have a new car every year like my friends who have no savings. I would also like a bigger house but I save instead. Depressing . My friends say that there house will be there retirement and I say I'm glad I'm not there kids when they kick the bucket. They will leave a bill not a will. Hopefully as my investments grow I can scale back on the monthly deposits to these things but it wont be anytime soon.

The difference between you and your friends.....you are mature and they are not. Our society seems to have forgotten the difference between wants and needs. And many don't seem to understand that they are in most cases, they will be soley responsible for funding their whole retirement. And the data does not lie....Americans are not saving enough as a nation. Traditional pensions are becoming increasingly rare. Don't let not having a "new car" every few years get you down. And the big house comes with a set of huge bills, which diminishes your ability to save. Just keep doing what you're doing...

 

[caitycaity]

When I got my first full time job -- I was 22.

 

[Ronda93]

I'd choose the Roth IRA. The power of getting that money tax free in your retirement is greater than the savings you may get from a Traditional IRA now.

IRAs are only an account type. It sounds like Navy Federal has a single offering (your APR reference - APR should be the concern of someone 2x your age). I'd avoid them. Others have suggested good reading.

I'm going to tell you to take risks. You are young. The bigger risk for you is being too conservative and getting beat by inflation. I think your best alternative is a low cost equity mutual fund (Vanguard index funds come to mind). Much like Ron Popeil you set it and forget it (don't stare at it, don't fiddle with it). Add to it as much as you can or is allowed (currently $4,000 annual limit). Over time the markets will rise and fall, but don't panic.

You're preparing to buy a house now, but if you were eyeing Roth contributions for a down payment, I'd be more conservative with investment choices.

Other things to consider. Start Roth contributions now while your earning power is lower. The income limit for contributing to a Roth IRA is, I think between 95,000-105,000. It should rise, but like the AMT limit it may get left behind. After that you are limited to a non-deductible traditional IRA.

Absolutely you should both have Roth IRAs. Sadly you will not be treated as a single financial entity. You both have to plan to retire alone and if you don't it's just extra.

Good luck. You have until April 17, to make your 2005 IRA contributions.

 

[EthansMom]

Thanks for all the replies.

I will get a book. But in the mean time, the first step is to open up an IRA and then once some money gets into the account, invest that money within the IRA account? Like with an IRA share certificate or something, mutual fund? I'm a bit afraid of stock, I'm not much of a risk taker.

You should definately look at setting up an IRA (either Traditional or Roth) someplace where you can invest in Mutual Funds. You'll get a better rate of return from Mutual Funds than from cds and the like. I've got my IRA with Vanguard (http://www.vanguard.com) and love their low costs and customer service.

I don't recommend opening up an IRA at your local bank -- you'll likely get a very low interest rate. Over the long term, retirement funds invested in Mutual Funds may give a return around 8% per year -- you won't get that with cds.

If you set up your IRA before April 15th, you can designate up to $4000 toward your 2005 contribution! If you put the money in a Traditional IRA, you may be eligible to deduct your contribution on your Federal Taxes. If you contribute to a Roth IRA, then you'll never pay taxes on your profits (as long as you don't take out your profits until you are 59.5 years old). If you qualify for a 401k at work, then you should do the 401k AND a ROTH (not Traditional IRA).

I understand being scared of stocks, but a Mutual Fund will invest you in many stocks at the same time. Managed Mutual Funds, that try to beat the performance of the stock market, are going to have higher fees (taken out of your profit) than Index Mutual Funds. Managed Funds trade their stocks more often, so more costly. Personally, I advise looking at the Vanguard 500 Index Fund (which mirrors the holdings of the 500 Index) or the Vanguard Total Stock Market Index. Take a look at the prospectuses (avail. online). Prospectuses are very difficult to read, but you should look at the return on investment over the last year, 5 years, 10 years, etc. Also, look at the fund costs and the stocks currently held in the Mutual Fund.

I believe Vanguard allows you to open your IRA with as little as $1000 per Mutual Fund and then you can send a check any time you want. I sit down and send in $333 every month, so that I get in the max. contribution each year in a painless manner. Also, you get the benefit of "dollar cost averaging" -- when stocks cost more, your $333 will buy fewer shares and when stocks cost less, your $333 will buy more shares.

Both you and your SO should have retirement accounts. If you can't afford to max them out right now, start with an amount that you are comfortable with and increase your contributions each time you get a raise. Within a few years, you could both be contributing the maximum to your retirement!!!

Like another poster mentioned, I would never cash out a retirement account. When you leave a company where you have a 401k, you can roll over your 401k to a Traditional IRA or sometimes to the 401k of your new company.

I hope this helps!

 

[azgal81]

I started saving for retirement since I was 21. I was 25 now. My employer has a company match retirement program. That I save I think 9% of my checks every pay period (we can't save more then that) and then they match that 100% after we have been there for a certain number of years. My parents also have some sorta retirement/life insurance fund for me. They won't tell me anything about it though. I imagine they will tell me about it later. I asked them if I should open an IRA and they said not yet because they have that fund for me and should help me alot. Right now I'm saving for retirement through my company which is more then most people my age. Your 20s are the best age to save because the interest will compound more then if you were to start saving 10 years from now. Don't keep all your money in the same account. It's important to spread it out just in case something were to happen. Open a account for both you and your SO and spread the contributions out between both accounts. That way if something were to happen to one of you then either you or her would be okay for retirement! I also don't think you can have a joint IRA.

 

[icebrat001]

Thanks for all the advice!

 

[etwinchester]

Opening up Roth IRA's or Traditional IRA's is not recommended through your bank?

Great, that's where I was going to go to set things up.

Should you go to a Financial Advisor then or what?

 

[puffkin]

My DH and I work for the same company. Right now we both contribute to our 401k plan, though I wish we could also start an IRA. Hopefully that can happen in the near future if we get any promotions.....

Our plan matches 50% up to 3% max. So basically you have to put in at least 6% to get the full max. I look at it as an additional 3% salary, and people are crazy not to put in at least the 6% to get it. Between my DH and I, we put in approx. 10% of our pretax salaries and both get the full company match. My DH has been here 5 years now (started his plan when he was 22) and his account has more than quadrupled from what he has put in. I have only been here a little over a year, (25 right now) so mine is much smaller but it is starting to grow.

So, my advice is, start as soon as you can, you really won't miss the money that much if you aren't used to it. Max out your company match on your 401k if you can and then open up some other investment vehicle if you want to contribute more.

 

[Ronda93]

Opening up Roth IRA's or Traditional IRA's is not recommended through your bank?

Great, that's where I was going to go to set things up.

Should you go to a Financial Advisor then or what?

No, I'd avoid advisors, too. Unless you have substantial assets to inveset advisors are fee traps. I'm with EthansMom on this. Find a mutual fund company (all of them offer IRAs) For a start check the minimums at Vanguard, T Rowe Price and Fidelity. Pick a fund or funds that represent your risk tolerance (high - stocks of small companies, sector funds. low - index funds, equity income funds) and invest directly with them.

Banks are usually limited in the number of investments they offer in IRAs and one of the worst things you can do to money is make a CD investment in an IRA. It makes the money cry.

 

[etwinchester]

No, I'd avoid advisors, too. Unless you have substantial assets to inveset advisors are fee traps. I'm with EthansMom on this. Find a mutual fund company (all of them offer IRAs) For a start check the minimums at Vanguard, T Rowe Price and Fidelity. Pick a fund or funds that represent your risk tolerance (high - stocks of small companies, sector funds. low - index funds, equity income funds) and invest directly with them.

Banks are usually limited in the number of investments they offer in IRAs and one of the worst things you can do to money is make a CD investment in an IRA. It makes the money cry.

Ok, so I can go to the www.vanguard.com website and invest directly from there?

I'm in my low 30's so I'd probably want lower risk since I'm not as young.

 

[Bob Slydell]

Ok, so I can go to the www.vanguard.com website and invest directly from there?

I'm in my low 30's so I'd probably want lower risk since I'm not as young.

Yes, I would suggest doing that (look at a couple of the major fund companies, like T Rowe Price and Fidelity as well).

In your low 30's, you should be looking at mostly stock funds -- you can afford a little more risk at your age since you're 25-35 years away from retirement.

 

[EthansMom]

Ok, so I can go to the www.vanguard.com website and invest directly from there?

I'm in my low 30's so I'd probably want lower risk since I'm not as young.

I agree with Bob Slydell and Ronda93. Go directly through an investment company like Fidelity or Vanguard. If you're having problems finding information or forms on the website, call them directly -- both Fidelity and Vanguard have great customer service.

Also, in your 30s, you're still quite a ways from retirement, so you should still be largely invested in stock Mutual Funds. There are Mutual Funds that will automatically adjust your balance of investments, depending on your age -- they decrease your stock purchases and increase your bond purchases as you get older.