401k's and investing for complete idiots

[Argonne69]

Does it really take an advisor to figure out how much you are going to need to retire? There are plenty of basic retirement calculators on the web.

 

The most basic rule of thumb is that you'll need 20x your yearly needs to retire at 65, assuming your untapped balance compounds at 4% interest.

 

For example, a person making $100,000 a year will likely need 85%, or $85,000 a year in retirement. With a starting fund of $1.7 million, and withdrawing $7084 a month starting at age 65, the savings will run out in 30 years. (https://www.calcxml....l-my-money-last)

 

Of course, if you believe you'll live a longer or shorter life, you'll need to adjust accordingly. Also, can you count on 4% return? Can you live on less than 85% of your retirement salary? How is inflation going to effect living expenses? Do you want a sizeable chunk remaining to leave to your heirs?

 

In the above example, if you increase the monthly withdrawals by 2% to account for inflation, the money runs out in 22 years.

 

Also, this calculation does not take into account Social Security. If you believe that the fund will not be insolvent, you can adjust accordingly.

 

If a person makes $100k a year and spends and spends $85k in retirement, unless he's saved his REAR, he's going to go broke. Again, if you make $100k you aren't spending a $100k for your pre-retirement living lifestyle. A retirement living lifestyle is based upon what you spend to make you happy and do the things you want to do, not your gross pay. If you make $100k pre-retirement, you aren't even netting $85k. There is no "rule of thumb" basically because everyone has different variables.

 

Of course you'll go broke...in 30 years if you've saved $1.7 million.

 

The point is that you are very likely going to spend less in retirement than you do pre-retirement. After retirement will will likely not be putting aside 10 to 20 percent for retirement savings. You are likely going to have no mortgage payment. You will not be spending money commuting to work.

 

You will likely have increased medical costs, and travel expenses, assuming you'll be traveling in retirement.

 

Basically, one must have a budget prepared for retirement, and then determine how much you'll need saved to meet that (monthly) budget. 20x to 25x the annual amount is a good starting point.

[somaplr]

There is quite a few more variables than that - it's a pretty big generalization because no two situations are the same. Most "basic" financial planning calculators you'll get on the web use a linear regression approach to figure out how much you'll have at date X. They've been proven to be not so realistic, I'll just say that. Deducing a fully holistic financial planner's job capabilities to a retirement calculator found on bankrate.com underestimates the value they can add to financial situations. Helping to determine and maintaining a retirement living lifestyle is one of the many things they do, but it certainly doesn't end any where near there.

[Argonne69]

There is quite a few more variables than that - it's a pretty big generalization because no two situations are the same. Most "basic" financial planning calculators you'll get on the web use a linear regression approach to figure out how much you'll have at date X. They've been proven to be not so realistic, I'll just say that. Deducing a fully holistic financial planner's job capabilities to a retirement calculator found on bankrate.com underestimates the value they can add to financial situations. Helping to determine and maintaining a retirement living lifestyle is one of the many things they do, but it certainly doesn't end any where near there.

 

I'm not following you. We're talking about the burndown in retirement. It's basic math to figure out how long $n will last given $m dollars per month in withdrawals and r% interest on the balance.

 

Yes, planning to get to $n by age 65 might take a planner's help, but after that the math is straightforward.

[bub72ck]

Lots of good 401k and investing advice in here and I would add a few other things that may seem like common sense but people close to or in retirement often forget.

 

1. Make every effort to pay off large monthly expenses. A mortgage and car payment(s) will eat into your budget quickly and may prevent you from buying that boat or vacation home you dreamed about in retirement. While this may seem to be a no brainer, lots of people will buy a newer bigger house when they are 45 and take out a mortgage that will carry well into retirement years.

 

2. Plan for health insurance costs. This is especially true if you are planning to retire early. If you retire at age 60 and lose employer supported health insurance, you have 5 years of hefty premiums before you are eligible for Medicare. The individual health insurance market is not what is used to be. Plans have gotten more expensive and benefits have gotten worse.

 

3. Consider long term care especially if you plan to leave a sum of money to beneficiaries. Many times people will have a large sum of money intended for heirs only to spend it on several years of long term care. I have even seen cases of children paying for a LTC policy for parents in order to protect their inheritance.

[Argonne69]

+1 on the long term care insurance. However, the market for this insurance is fairly new, and with cost escalating significantly over the past few years, the insurance companies have been forced to raise rates. I signed up fairly early to lock in low rate, and have seen my rates more than double with a reduction in benefits. They would have more than tripled had I elected to keep the same level.

 

That said, I think it's still an important aspect of one's overall financial planning.

[PixlPutterman]

I'm loving all the advice guys, really appreciate it. Need to tear into that bogleheads page

[garyt]

Regarding the " spending85% of what you made" rule. Every retired person I know says you'll spend less in retirement than you think. Now that's not scientific data of course just advice I've gotten from intelligent retirees I trust.

[garyt]

Another thing to consider, after you put in enough to take advantage of any employer match in your 401k, you might want to look into putting any extra funds in a Roth IRA. You'll use after tax dollars now to fund it but all earnings can be withdrawn tax free down the road. As a younger person it's a great deal. There is also no RMD's with a Roth. With the size of our deficit, iut's hard to believe taxes won't be quite a bit higher down the road.

I have enough money in a Roth that when I retire I will be able to manipulate my taxable income.

[PixlPutterman]

What is an RMD?

[Ron Swanson]

What is an RMD?

 

Required Minimum Distribution, its when you have to start making withdrawals from your retirement accounts at age 70.5, but as mentioned above you gain the advantage of no RMD in a Roth IRA account.

[The Pearl]

I have been with my company for coming on 3 years, and will be fully invested in my 401k with them. I have JUST started to poke around in my 401k and opened a BrokerageLink account with Fidelity (also who my employer uses for the 401k).

 

I am not at all looking to become a day or even a week trader. How ever I do want to understand what is going on with my money and be able to look at it a time or two a month and know if I am headed in the right direction.

 

I was planing on putting half of my 401k into an S&P 500 fund and the other half in ONEq, how ever that is just based off of advice from a friend who is doing well with his 401k.

 

Can anyone recommend either a path/plan or maybe some foundational reading?

 

Again just want to be able to just understand at a macro level what is happening with my retirement every few weeks or once a month.

 

Thanks

 

Is the only way to access your 401K through the brokeragelink option?

[The Pearl]

For the time being I bought into 3 funds - FNCMX - FSELX -FSTMX

 

You have zero global diversification. U.S. markets are significantly more expensive than the rest of the world and the long-term forward returns of the U.S. will almost certainly be lower. You need too have a significant portion of your portfolio in emerging markets and developed markets ex-U.S. Most investors are currently set-up to make the same mistake. It is called home country bias.

 

There is no need for the semi-conductor fund. The other two funds are highly correlated to each other and essentially act like the same fund.

[huskydawg]

Ugh I've been quite foolish last few years. Pretty newbie investor, started to pour money in during the crash. Apple netted me $5,000, could have been $18,000 had I held. Nvidia could have netted me $30,000 if I held. Going to buy and hold now and rebalance every so often. I'm such a fool for selling!!

[PixlPutterman]

I have been with my company for coming on 3 years, and will be fully invested in my 401k with them. I have JUST started to poke around in my 401k and opened a BrokerageLink account with Fidelity (also who my employer uses for the 401k).

 

I am not at all looking to become a day or even a week trader. How ever I do want to understand what is going on with my money and be able to look at it a time or two a month and know if I am headed in the right direction.

 

I was planing on putting half of my 401k into an S&P 500 fund and the other half in ONEq, how ever that is just based off of advice from a friend who is doing well with his 401k.

 

Can anyone recommend either a path/plan or maybe some foundational reading?

 

Again just want to be able to just understand at a macro level what is happening with my retirement every few weeks or once a month.

 

Thanks

 

Is the only way to access your 401K through the brokeragelink option?

 

It's is, well at least without moving my 401k from Fidelity, even then I'm not sure what control my employer would still have...

[GolfingLefty18]

I'm 33. I have a kid on the way. I've been a working schlub my whole life, doing what I can to get by working at golf courses & bartending etc. I don't know the first thing about planning for my future, but man- for the sake of my family- I really want to learn. Where do I even start?? Reading all this looks like Japanese writing to me.

[Argonne69]

I'm 33. I have a kid on the way. I've been a working schlub my whole life, doing what I can to get by working at golf courses & bartending etc. I don't know the first thing about planning for my future, but man- for the sake of my family- I really want to learn. Where do I even start?? Reading all this looks like Japanese writing to me.

 

As noted previously, start here: https://www.bogleheads.org/wiki/Main_Page

 

Does your employer offer a 401k? If not, an IRA is probably a good place to start.

[KLeC]

The magic of compounding was a little more exciting when rates weren't so dismal! In today's low rate environment, I'm liking REITs a lot. The down side is that they need to be looked at a lot and you have to be able to pull the trigger if necessary. Even so, there are some with healthy returns.

 

 

 

OP, I assume you max out your 401K contribution, or at least withhold the amount needed to get the full employer match? Otherwise, it's leaving money on the table.

 

The average person simply doesn't understand the power of compounding interest. A 30 year old making 50k a year who increases their withholding by just 1% ($500 a year) will have approximately $50,000 more when they turn 65.

[Argonne69]

What low rates? There are total bond market funds that have averaged close to 5% over the past 10 years, and the S&P 500 has averaged ~7% over the past 10 years, and 10% since its inception.

 

Parking money in a savings account, CD, or money market fund is not investing. It's pretty much equivalent to stuffing cash in your mattress.

[WesP]

Everyones financial plan is going to be different. Just because its worked for one person doesnt mean its going to work for another. I do personalized Financial Planning, specific to your personal and financial wants/needs. PM SENT. :drinks:

[CommerceTiger]

So serious question. As a 21 year old making decent money, nothing crazy but enough for my family (wife and daughter) to live comfortably right now, what would be the best way to invest something small like $20 a week or $100 a month?

[scomac2002]

So serious question. As a 21 year old making decent money, nothing crazy but enough for my family (wife and daughter) to live comfortably right now, what would be the best way to invest something small like $20 a week or $100 a month?

 

The elegant solution would be a target retirement fund such as Vanguard Target Retirement 2060 Fund (VTTSX).

[CommerceTiger]

So serious question. As a 21 year old making decent money, nothing crazy but enough for my family (wife and daughter) to live comfortably right now, what would be the best way to invest something small like $20 a week or $100 a month?

 

The elegant solution would be a target retirement fund such as Vanguard Target Retirement 2060 Fund (VTTSX).

 

Thank you! Only problem is it required a $1000 minimum and I was really hoping to find something I can just slowly build by adding monthly

[scomac2002]

So serious question. As a 21 year old making decent money, nothing crazy but enough for my family (wife and daughter) to live comfortably right now, what would be the best way to invest something small like $20 a week or $100 a month?

 

The elegant solution would be a target retirement fund such as Vanguard Target Retirement 2060 Fund (VTTSX).

 

Thank you! Only problem is it required a $1000 minimum and I was really hoping to find something I can just slowly build by adding monthly

 

I'm sure that there are other similar products out there with lower minimums. Unfortunately I'm not familiar with other similar options from US issuers.

[CommerceTiger]

So serious question. As a 21 year old making decent money, nothing crazy but enough for my family (wife and daughter) to live comfortably right now, what would be the best way to invest something small like $20 a week or $100 a month?

 

The elegant solution would be a target retirement fund such as Vanguard Target Retirement 2060 Fund (VTTSX).

 

Thank you! Only problem is it required a $1000 minimum and I was really hoping to find something I can just slowly build by adding monthly

 

I'm sure that there are other similar products out there with lower minimums. Unfortunately I'm not familiar with other similar options from US issuers.

 

I gotcha. Thank you so much for the advice. It's much appreciated

[Jalan]

If you are 31, expect to work another 35 years. If you do, I recommend you invest aggressively until you are within 5 years of retirement, then reconsider. If you want the greatest gains, invest in individual securities. However, if you want to invest aggressively, you need the stomach to watch your portfolio decrease by up to 50% without you jumping out a 60th floor window. You also need the fortitude to leave things alone. One of the biggest mistakes people make in a market downturn is pulling money out. Once you sell off, you have lost that money. You haven't lost any money until you sell something below your cost. Then you've lost it for good. Time is on your side in the market. It always bounces back. You might put a little aside in your 401(k) to buy and sell individual securities. Start small until you get a feel for it. Then, depending on your risk tolerance, you may choose to go deeper. Just take your time and do a little research into stocks you might want to buy. Diversity in investments is important. Don't put all your money in the same place. Good Luck.

[teejaywhy]

For the time being I bought into 3 funds - FNCMX - FSELX -FSTMX

 

http://www.morningstar.com/funds/xnas/fstmx/quote.html produces reports about every stock and fund that gives you some key info that helps you assess the fund and its costs and investment strategy. A good resource.

[teejaywhy]

So serious question. As a 21 year old making decent money, nothing crazy but enough for my family (wife and daughter) to live comfortably right now, what would be the best way to invest something small like $20 a week or $100 a month?

 

Some basic advice: PAY YOURSELF FIRST

 

If you don't have a 401k at work, open an IRA. I recommend Schwab. Lots of no load and low fee funds including the mentioned "Target retirement date" funds. Very easy to track and manipulate online.

 

IRA or 401k recommended because there are some restrictions on withdrawal, in effect, "forcing" you to keep your savings.

[teejaywhy]

Just be careful, there are a LOT of insurance salesmen that call themselves financial planners.

[Argonne69]

So serious question. As a 21 year old making decent money, nothing crazy but enough for my family (wife and daughter) to live comfortably right now, what would be the best way to invest something small like $20 a week or $100 a month?

 

The elegant solution would be a target retirement fund such as Vanguard Target Retirement 2060 Fund (VTTSX).

 

Thank you! Only problem is it required a $1000 minimum and I was really hoping to find something I can just slowly build by adding monthly

 

Open a savings account, and set aside $100 a month. In 10 months you'll have your $1000 minimum.

 

Are you looking to set up a retirement account, or simply start saving/investing for a rainy day? Retirement funds have the benefit of tax savings now, but you'll be penalized if you pull the money out before retirement (with a small number of exceptions).

 

If you're simply looking to start saving for a "rainy day", there are plenty of low cost mutual funds with low minimums. I got started with TIAA-CREF many years ago. If you sign up for the Automatic Investment Plan, the minimum initial investment is only $100.

[CommerceTiger]

So serious question. As a 21 year old making decent money, nothing crazy but enough for my family (wife and daughter) to live comfortably right now, what would be the best way to invest something small like $20 a week or $100 a month?

 

The elegant solution would be a target retirement fund such as Vanguard Target Retirement 2060 Fund (VTTSX).

 

Thank you! Only problem is it required a $1000 minimum and I was really hoping to find something I can just slowly build by adding monthly

 

Open a savings account, and set aside $100 a month. In 10 months you'll have your $1000 minimum.

 

Are you looking to set up a retirement account, or simply start saving/investing for a rainy day? Retirement funds have the benefit of tax savings now, but you'll be penalized if you pull the money out before retirement (with a small number of exceptions).

 

If you're simply looking to start saving for a "rainy day", there are plenty of low cost mutual funds with low minimums. I got started with TIAA-CREF many years ago. If you sign up for the Automatic Investment Plan, the minimum initial investment is only $100.

 

Really looking for something I can start throwing money I won't miss in now so maybe when I'm older and I can have some wealth accrued. Not really retirement I guess but just a way to ensure I have something for myself later in life