Need advice to plan for retirement |
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becky21
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Cash: $ 3.05
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Joined: 28 May 2015
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Need advice to plan for retirement |
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All,
Very thankful for the learning and advice shared in this forum. It's informative and beneficial. Wish I had learnt these in 20s or 30s. I made wrong choices, and need your suggestion to do it right.
Where I current stand is -
1. Single, Renting making $95k.
2. 401k, IRA and CDs at 2%.
3. Two loans.
4. Savings - in 401k
While reading the forums and advice (from oldguy, wino and others) it has been suggested to invest in the SP 500 index funds.
My questions?
1. Would that mean to put all the money in 1-2 funds like FUSEX/FUSVX and/or FSTMX/FSTVX?
2. 401K account.
3. Roth IRA.
4. What should be my plan?
Thank you in advance for your advice and suggestion.
Last edited by becky21 on Tue Jun 09, 2015 7:32 pm; edited 1 time in total |
Thu May 28, 2015 3:05 pm |
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littleroc02us
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I've been there myself. I was unwise with money in my late 20's to early 30's. Bad choices. What I did was stop borrowing money, got 3 jobs and paid off debt as fast I could. It took me under 5 years to pay off 50k but it was worth it.
When I look at your situation, let me point out some facts.
1. Your net take home pay is $5833 a month.
2. Your rent payment is 12% of your take home pay, which is awesome
3. Your total payments are a total of $2388, (This doesn't include food, clothing, entertainment, but even if that amount was in the neighborhood of $1,000, that still leaves you with $2445 a month extra.)
So my question for you is, where is the extra $2445 going? If you used that to pay towards the 401k loan, it would be paid off in 13 months.
Once you've dissolved that loan your going to have $3200 to invest with. That amount alone invested in a good index fund such as VTSMX making the average return of 8% after inflation for 20 years, including the 18k you already have in a Roth and the annual contributions to your Roth IRA of $5500 would amount too 2.2 million.
Risk comes from not knowing what you're doing. (Warren Buffet)
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Thu May 28, 2015 4:15 pm |
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becky21
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Cash: $ 3.05
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Joined: 28 May 2015
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Thank you littleroc02us for responding.
Not sure how you came up with $5833. I get biweekly pay.
Last edited by becky21 on Tue Jun 02, 2015 7:09 pm; edited 1 time in total |
Thu May 28, 2015 5:07 pm |
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oldguy
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Location: arizona |
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As littleroc says, your investing looks pretty darn good - he says 8%, corrected for inflation, the raw average is 11%/yr.
You have about $228,000 now, and you are investing an awesome $28,300/yr into your accounts. That plan, at 11%/yr, is about $3.6M in 20 years. (Your current $228K makes up about $1.6M of that - so you have already done a lot of the work.
I wouldn't hurry to prepay the loans, especially the 2% car note, investors NEVER prepay 2 capital, leave that money where it is, working for you at 11%. Same with the 401 loan (unless it costs more than 5% or 6%).
I would move all 3 investment funds into FUSVX, that is the generic USA Market index, diversified across most of the commerce of the US & world. The Freedom 2035 is fine, but it holds most of the same stocks as FUSVX - no need to complicate your life.
As for "not good in investments, selling/buying on regular basis etc" - that is universally true, the difference is that you admit it, lol. But in truth, only about 15% of professional fund managers are able to beat the SP500 Index, and it's not even theh same 15% from year-to-year. Ie, the market cannot be predicted, the things that will affect it haven't happened yet. So - buy and accumulate, never sell, let the ups/downs average out over a 20 year period.[/b]
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Thu May 28, 2015 5:14 pm |
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becky21
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Cash: $ 3.05
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Joined: 28 May 2015
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It's very comforting to know that I'm on a right track.
I will move the funds to FUSVX to keep it simple.
Thank you again.
Last edited by becky21 on Tue Jun 09, 2015 7:32 pm; edited 1 time in total |
Thu May 28, 2015 7:02 pm |
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oldguy
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quote: Next 3-4 years are tight as I pay the two loans but then it should get better. Once the loans are done, I can buy the house.
The house doesn't need to be contingent on prepaying the loans, is mostly determined by cash-flow status. You currently spend $750/m for rent. That would offset a 4% $140k loan ($670/m) plus about $80/m for tax/ins. You would pull the down-payment from your $228,000 - eg, if the house was $160k you'd pull $20k. If you're looking at townhouses in a medium COL region, that could work. If you're looking at 3500 sq foot 2-story houses in Los Angeles - then no.
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Thu May 28, 2015 11:18 pm |
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becky21
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Houses are not expensive in this area.
Last edited by becky21 on Tue Jun 02, 2015 7:10 pm; edited 2 times in total |
Fri May 29, 2015 1:05 am |
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littleroc02us
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quote: Originally posted by becky21 Thank you littleroc02us for responding.
Not sure how you came up with $5833. I get biweekly pay.
Biweekly $3,653, Deductions are $778 ---- (401k - $657, Insurance - $25, HSA - $100)
Taxes on balance $2,875 is $963.
Net biweekly after tax is $1,911 - $400 (loan) - $380(auto) = $1,131
Also putting $460 pm to IRA.
So technically what is your net bi-weekly income? And then what are your bi weekly payments?
Risk comes from not knowing what you're doing. (Warren Buffet)
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Fri May 29, 2015 5:27 am |
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littleroc02us
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quote: Originally posted by becky21 Thank you littleroc02us for responding.
Not sure how you came up with $5833. I get biweekly pay.
Biweekly $3,653, Deductions are $778 ---- (401k - $657, Insurance - $25, HSA - $100)
Taxes on balance $2,875 is $963.
Net biweekly after tax is $1,911 - $400 (loan) - $380(auto) = $1,131
Also putting $460 pm to IRA.
Also, I'm confused by your budget. Are you saying you get paid bi-weekly, but your subtracting you monthly auto loan and hour Ira contribution from your bi-weekly income? I use a bi-weekly budget, that is zero based. Every dollar has a name , so how do you outline yours?
Risk comes from not knowing what you're doing. (Warren Buffet)
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Fri May 29, 2015 5:34 am |
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littleroc02us
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quote: Originally posted by becky21 Houses are not expensive in this area. I'm looking around $200,000 or less. However, I still need 20% down payment ~ 30-40k. So if and when I can pull that amount, I will go for it.
I don't think a house purchase is a good idea right now with all of your debt. I would focus on paying those outstanding debts first. I like having money in my pocket and not going towards all of these different payments. A mortgage won't make you wealthier.
Risk comes from not knowing what you're doing. (Warren Buffet)
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Fri May 29, 2015 5:37 am |
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Wino
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I worked up a quick spreadsheet. Assuming you live in the US, and that you have $28K in deductions, you should be bringing home just under $7000 per month, after taxes, but before all other expenses.
Deducting your 401K of $17100, your working amount is now around $5400 per month. Now, let's assume you have another $400 in expenses before spending, you have $5K to work with for all of your wants and needs.
This shows that you have at least $3500 after your loans are paid, but before rent, utilities, transportation, education, entertainment, etc.
Using this figure, you should probably be able to afford around $1200 per month for a mortgage without making yourself house poor. Personally, I think you should be able to buy a decent house for that amount, but depending on your local cost of living, you may or may not.
I'm with Littleroc. Pay off your loans as quickly as you can, then buy the house. You should be able to put at least $1500 per month toward your bills, in addition to what you're already paying, which should reduce your debt well within 3 years. At that point, do what you want with the money, which would probably be "keep investing and buy a house." If you buy the house now, you're going to have thin living if anything goes wrong, and believe me, with a house, something is always going wrong.
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Fri May 29, 2015 9:21 am |
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becky21
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Thank you for taking time to answer the queries.
My taxes are high.
Last edited by becky21 on Tue Jun 09, 2015 7:33 pm; edited 2 times in total |
Fri May 29, 2015 12:56 pm |
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littleroc02us
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quote: Originally posted by becky21 Thank you for taking time to answer the queries.
I agree with all of you that I will first pay off the loan and then venture into the house. I still need to save for the down payment while paying these loans.
I don't think paying off debt and saving for a home at the same time is a wise choice. It will take twice as long to do both. I would put all efforts towards paying off the debts first. The debts are restricting you from getting things done.
Risk comes from not knowing what you're doing. (Warren Buffet)
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Fri May 29, 2015 2:11 pm |
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oldguy
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Location: arizona |
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quote: But I get a IRS refund around $3,600.
?? Why on earth do you overpay by $3600 and then wait to get it refunded? Fill out a new W4 at work, ideally you want to owe a small amount on April 15.
Re: the monthly cash flow debates. It is better to think in terms of annual gross income, annual net income etc. It's easy to get wrapped around the axle with the various pay systems - biweekly equals 26 checks/yr, semi-monthly equals 24 checks/yr. With biweekly you get an "extra" check every 6 months.
Again, you can easily buy a house if you want one - you have far more financial depth than most home buyers - ie, you have a net worth of $228k + car value - $42k -$12k, about $190k. (Many first-time buyers have a negative NW, student loans, car loans, yada). And your large income stream dictates your ability to service the loan. (BTW, don't plan on a tax break from the mortgage, lots of people are fooled by this).
As for a 20% down payment - I always try to buy with a minimum down payment - 3%, 5%, 10%, etc. I don't want to lock my money into house equity, I want it available for other investing.
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Fri May 29, 2015 3:02 pm |
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becky21
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Cash: $ 3.05
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quote:
?? Why on earth do you overpay by $3600 and then wait to get it refunded? Fill out a new W4 at work, ideally you want to owe a small amount on April 15.
- I felt the same when I wrote about refund. Why overpay and then wait for the refund!!! May be its one way to save.
But I will change the deduction. Thank you!
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Fri May 29, 2015 3:21 pm |
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