Another "Am I saving enough for retirement thread"

[Epiphany]

BG: Dh makes 65k, I make 50k. DINKS in our early 30's. I work for small firm that offers SEP IRA which means at the end of the year my boss hands me a check made out to the bank that holds the fund and I deposit it. I cannot put in more or alter the amount at all. Usually it is 4500 or so. Yesterday he handed it to me and it was 2200 I also got my year end check and my plan is to ask him to rewrite the checks so I can have 4500 going to SEP IRA. Don't know if he'll do this. DH puts 15% of salary into 401k at work which has I think a 4% match. So usually we are putting about 14-15k away each year.

I don't personally think this is enough and would like to start a ROTH IRA. But DH does think we are putting away enough. He's also one of those people, ok I am too a bit, who wants to retire or be semi-retired in our late 50's. We can easily afford to put more money away, pay off cc every month (use for points), house will be paid off in 9 years, no more SL debt, etc.

So how do we fare for retirement and do I push harder to convince him we need to start a ROTH IRA?

[The J]

If you're looking to retire in your 50s, you should be putting away at least 20%, preferably more.

[Epiphany]

That's what I tell DH. I don't think it's realistic to do full retirement in our 50's but more like step down - I'll do consulting, he may pursue something else. That's why I said semi-retired by late 50's

[Regis]

How much do you currently have in retirement accounts? If you're starting with nothing, $15k per year will probably give you less than $1M in 25 years.

[resolution]

How "semi-retired" do you plan to be in your 50's? There is a 10% penalty for withdrawing from the SEP IRA before age 59.5, so if you want to draw on early retirement funds you should be setting some up in a regular brokerage account. That also may allay some of DH concerns, since the money would be accessible at any time.

[Epiphany]

we currently have just over 100k total between us in our accounts. What kind of regualar brokerage accounts should we look into instead? We already have 6 months+ emergency fund in high interest savings account so this would be in addition to that and just for retirement.

[phil5185]

usually we are putting about 14-15k away each year.
wants to retire or be semi-retired in our late 50's.

You guys are doing great, almost no debt at age 30 and an excellent family income stream.

If you continue with the $15k/yr and use 11%/yr investments, you will have :
Age 50 - $1,070,000
Age 55 - $1,900,000
Age 60 - $3,300,000

Based on that, you may need to bump it up a bit, $2M won't get a 55-yr-old couple very far in 2035. When we were first retired, we spent at least as much as we did while we were working, you are likely to still be pretty active at age 55 & 60.

The account type isn't nearly as important as the amount invested and the investment return. If you invest $30k/yr in 11% products, that is $6.6M at age 60, it doesn't matter so much whether it is in Roths, 401ks, or a personal account - each of the 3 account types has its own advantage and purpose.
Your Fed/State taxes are probably $18,000 to $20,000. You might want to push dh's 401k closer to the max $16,500, you'll lower your taxes by >$2000.

[Regis]

Since you're starting with about $100k, putting $15k/year in an account for 25 years will yield you somewhere around $1.5M. Doing the same for 30 years will get you to around $2M. This based on average rate of 6.7% annual increase computed from the last 60 years of the Dow. It depends on your lifestyle, but I doubt that kind of money would last you 35-40 years of possible retirement.

[phil5185]

We already have 6 months+ emergency fund in high interest savings account so this would be in addition to that and just for retirement.

Don't buy into too much of the 'Money Magazine' cool aid. In many cases, the writers don't understand wealth concepts, they are busy trying to get paid for an article - so a bit of sensationalism is required.

Rather than 'retirement accounts' think of 'family wealth' building, it has more appeal (and more uses) for most people. And 6 months EF? An advisor is probably required to say that to appear responsible, pc, etc.

Yes, there are articles about 'high interest savings accounts', where to find the best one, yada. But no such thing exists, at best it's an oxymoron. The law of finance - risk & return are directly proportional - applies. Savings accounts are designed to store money safely, not to earn money.

I would cap the EF at about $5000. Put the rest in a taxable account where it is readily accessible as a fall-back EF and use it to grow wealth.

[Epiphany]

So glad to see you on the board Phil, always appreciate your advice.

I agree with you on the idea of wealth building, not just retirement account. But I guess I'm kind of stuck as to where to go from here (401k and EF) to there. What's next sorta speak. And I have to say, maybe I'm to young, but when you wrote an 11% yr/investments I almost LOL. I can't even conceive of that idea. I've looked at CD laddering to keep the money safe and liquid but our savings account rate is better than anything I can find. The idea of 6 month EF grew out of YM and when DH was facing a job layoff a few years ago. I'd like to keep that accessible and liquid. I'd say DH is defiantly risk adverse which I understand hurts the concept of wealth building. Keep the ideas coming though

[SVT]

Dec 30, 2010 10:58:50 GMT -5 phil5185 said:

I would cap the EF at about $5000. Put the rest in a taxable account where it is readily accessible as a fall-back EF and use it to grow wealth.

Of course I would think that this would depend on a person's unique situation. But yes, I do agree with this for the most part. If you have a lot of money, there's no sense in having a specific account for "emergency fund".

[SVT]

Dec 30, 2010 11:15:04 GMT -5 Epiphany said:

So glad to see you on the board Phil, always appreciate your advice.

I agree with you on the idea of wealth building, not just retirement account. But I guess I'm kind of stuck as to where to go from here (401k and EF) to there. What's next sorta speak. And I have to say, maybe I'm to young, but when you wrote an 11% yr/investments I almost LOL. I can't even conceive of that idea. I've looked at CD laddering to keep the money safe and liquid but our savings account rate is better than anything I can find. The idea of 6 month EF grew out of YM and when DH was facing a job layoff a few years ago. I'd like to keep that accessible and liquid. I'd say DH is defiantly risk adverse which I understand hurts the concept of wealth building. Keep the ideas coming though

Like Phil said, risk and return are directly proportional. You need to take on risk to get 11%/year. I just looked yesterday at my return for 401k and it's at 14.36% YTD. A Roth IRA is a place you could keep part or all of your "emergency fund" too, because you can withdraw contributions with no penalty or tax. However, with your income, I would think you could put money away in all retirement vehicles and then some in another account such as a taxable account.

[robbase]

"There is a 10% penalty for withdrawing from the SEP IRA before age 59.5, so if you want to draw on early retirement funds you should be setting some up in a regular brokerage account. That also may allay some of DH concerns, since the money would be accessible at any time. "

On a Roth you can ALWAYS take out the principle at ANY time, for this reason & many others I would recommend a Roth first

[phil5185]

I've looked at CD laddering to keep the money safe and liquid but our savings account rate is better than anything I can find.
I'd say DH is defiantly risk adverse which I understand hurts the concept of wealth building.

Knowledge tends to mitigate that fear - if you do the research, go thru the math, have a few successes, then the fear diminishes with time.

Be aware that wage earners cannot 'save' their way to wealth, eg, $40,000/yr for 30 yrs is only $1.2M. Two things - you won't like sacraficing $40k/yr of your $115,000 gross for 30 yrs - and you won't like having only $1.2M at age 65 when a new car costs $65,000.
Conversely, that same $40k/yr at 11%/yr is $11,000,000 - ie, wealthy by most any measure.
As for trolling CDs, "high yield" savings, stocks, for recent rates of return - that is called 'recency', that is extrapolating the most recent 5 to 10 yrs into 'forever'. Investing requires a longer focus, take a look at 30 yr blocks on the SP500 index. politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html

[haapai]

Knowledge tends to mitigate that fear - if you do the research, go thru the math, have a few successes, then the fear diminishes with time.

applies to pretty much any area of personal finance

[Deleted]

"So how do we fare for retirement and do I push harder to convince him we need to start a ROTH IRA?"

So my new years resolution is to contribute more, so here goes!

I read this question and my first thought is he needs to convince you why you shouldn't be contributing to a Roth. You can pull out your contributions if you ever needed to in an emergency and any gains are tax free so I guess I wonder what is the reason not to?

I am about your age and also a DINK and another thing to think about is tax diversification in retirement. IRA's and 401k's are taxed when you take the money out. Roth's are tax free. Since no one knows what tax rates will be always good to have diversification.

Dave

[phil5185]

And I have to say, maybe I'm to young, but when you wrote an 11% yr/investments I almost LOL. I can't even conceive of that idea.

rljrdn - did you happen to notice the year-end SP500 Index results yesterday? The 2010 return was just over 15% (divs included).

The SP500 accounts for about 80% of the corporate capital in the US, ie, most of the commerce in the country - it is the broad generic measure of business in the US (as opposed to the Dow which only includes 30 huge companies).

[Tiny]

If you need help convincing yourself of hubby that you need to save more for retirement do the following:
Imagine what kind of 'retirement' you want - it may include working, but remember to think about shelter, amusements, healthcare, cars, what will you do to fill your time (hopefully not sit on the couch and watch TV!)?
Next, you can take a stab at any of the online "retirement calculators" this may be more of a headache/confusing than it's worth but you could give it a try - read about the assumptions the calculators are using. That's helpful.
Better yet would be to project out what you are currently doing to see what you might have when you are 50/55... don't forget you'll need healthcare... which might not be available thru an employer with "semi retired" type work you may be doing. Guesstimate how much money you would need gross and Net each year. (That part always makes my brain hurt - if I have 50K investment "income" how much does that really give me to spend each year? How much will go to "income taxes"? I assume I really won't have 50K to spend even though I receive that much each year...)

I'm working towards a goal of being "semi retired" when I'm 55 - not really sure I'll make it but reaching for it has put me in a VERY good financial place. During the course of determining how I'd get there I realized I needed to save more (currently about 23% of my gross) AND make sure that I have quite a bit of investments outside my defined Retirement accounts to be used to cover the gap between 55 and whenever I can start accessing my assorted Retirement accounts. If I hadn't seriously thought about what "retiring at 55" truly meant I highly doubt I would have worked to max my retirement savings each year (cause odds are between 55 and 65 I WON"T be adding as much to them! or accrueing years of service towards a pension, or contributing as much to SS) inaddition to funding non-retirement account investments.
I'm single, 46, with little debt (small HELOC balance on "paid for" house, an easily handleable mortgage on a income property that's currently cash flow positive). I've got a paid for car, pay my CC bills in full each month, and have a 3 month EF (mortgage/utilites + alittle extra) for the investment property and a 6 month EF for me.
Retirement for me will rely on "income" from my taxable investments, a Roth, a 401(k), potentially a small pension and whatever SS gives me.
Again, not really sure I will be able to "retire" at 55 - at best I'm hoping I won't need a high stress job with a huge income to get me thru.

[happytraveler]

As a very general rule, one can safely spend 4% of their nest egg every year and safely have enough money to last for 30 years. If you figure out how much you need to derive from your nestegg, divide that number by .04, and you will get an estimate of how much money you will need to have when you begin retirement. If you need $10,000 per year from your savings, then you will need to have a nestegg of $10,000/.04 =$250,000.

[TD2K]

There was an article in the local paper about baby boomers not having saved enough for retirement. One person in the article had been laid off from his job (good paying, $100k a year) and hadn't been able to find another. He was going to start take early social security at 62 and had a total of $5k in savings, yes, $5,000. He said maybe he should have saved a bit more than he had.

[robbase]

As a very general rule, one can safely spend 4% of their nest egg every year and safely have enough money to last for 30 years. If you figure out how much you need to derive from your nestegg, divide that number by .04, and you will get an estimate of how much money you will need to have when you begin retirement. If you need $10,000 per year from your savings, then you will need to have a nestegg of $10,000/.04 =$250,000.
but according to Phil, I can invest for like 12% ;D ...only taking out 4% will make me die without spending all my money and my goal is to die broke ;D

[emptypockets]

I put $$ in every type of savings to keep the balance, so it's credit union savings, 401k, IRA, Roth IRA, stocks, bonds. In this age when investments are rolling over and rolling to death's door too many days, must have actual liquid cash, plus other instruments to weather until stocks and bonds regain their health. Enough is never enough. It's more like designating the change jar to a certain account, designating a dollar amount or percentage to another fund, but create all those eggs in different baskets, not all eggs in one basket, cuz when one basket falls, the other baskets and your nest eggs will be safe.