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I need some alternate financial advice please - very lost!

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skhoury
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Cash: $ 1.95

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Joined: 23 Mar 2006

I need some alternate financial advice please - very lost!

Hello all,

This is my first post to this .org so i'm hoping I can get some good advice. I'm 26 years old and make a decent living. I would like to take my money and begin to invest it towards the future (i.e. retierment).

I recently made an appointment with a financial advisor and he is pushing me to do the following things:
A) Open up an traditional IRA account via NewYork Life and vesting it with four mutal funds (4 aggressive, 1 conservative). This will cost be $4000/year (max this year apparently) or $333.33/month.

B) Open up a Whole Life Insurance policy with New York Life that will insure my life (obviously), but also accumulate a cash value and apparently pay ME $42k/year after I retire (assuming age 65). This will cost me about $500/month.

He claims that these items, when pair together with good tax planning allow me to save a nice nest ege and keep more rather than give to gov't, etc.

My questions is...does any of this make sense!? I'm so lost, especially about the life insuarnce.

Any advice is much appreciated...thanks folks.

Sam

Fri Mar 24, 2006 4:43 pm

coaster
Senior Advisor

Cash: $ 1355.60

Posts: 6675
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Location: Wisconsin

From your description of your planner's recommendations, I can guess he's a commission-compensated planner. i.e. you didn't pay him anything to analyze your financial situation and he makes his money from what he convinces you to do.

Recommendation #1 - starting an IRA is a very good idea. However, unless for some reason you need the tax deduction now, a Roth IRA is a much better idea for you because you won't be taxed on the distributions when you retire. And you should be using NO-LOAD mutual funds for your IRA. Also, do you have a 401(k) at work? If you do, and especially if there's a company match, you should also be contributing to that.

Recommendation #2 - do you really need life insurance? If you have someone in your life who's dependent on you for your income, or if you have someone you'd like to see get some money when you die, then yes, you need insurance. But whole life insurance is a rather poor investment vehicle. The only way I can see buying whole life insurance is if that's the only way you can be forced to save. If you do need insurance, you're much better off buying term insurance and investing the difference yourself.

What you might like to do is get a "second opinion" from another financial professional -- this time a FEE ONLY planner. You'll have to shell out a few bucks, but I think it'll be worth it to clear up your confusion. Good luck and let us know how it turns out. Smile

~Tim~

Eye Candy : Why Whimsy

Fri Mar 24, 2006 5:40 pm

skhoury
New Member

Cash: $ 1.95

Posts: 9
Joined: 23 Mar 2006

Thanks Guys for the tips -

Yes, I am single.

Yes, my company does offer a 401k, but doesnt match anything. I am going to start contributing in April.

I think I am going to get a second opinon - one that I pay for.

So, let me get this straight - the only difference between a Roth and Traditional IRA is basically taxes? In terms of earning potential, they are the same right?

Thanks again,

Sam

Fri Mar 24, 2006 6:03 pm

coaster
Senior Advisor

Cash: $ 1355.60

Posts: 6675
Joined: 11 Oct 2005
Location: Wisconsin

The type of IRA has no impact on earning potential. The type of IRA is just the structure of the retirement savings vehicle. The earning potential depends on what you have IN the IRA.

~Tim~

Eye Candy : Why Whimsy

Fri Mar 24, 2006 8:12 pm

efflandt
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Joined: 25 Apr 2005
Location: Elgin, IL USA

If your company has a qualified retirement plan (the 401k whether you contribute or not), you may be limited, based on income, as to whether or how much you can make in "deductable" contributions to a traditional IRA. It does not make sense to make "taxable" contributions to a traditional IRA if you qualify for a Roth IRA (below the income ceiling). Look up IRA on http://www.irs.gov/

In a traditional IRA all deductable contributions and all gains are taxed when withdrawn (along with 10% penalty if too early). If you make taxable contributions, those are not taxed, but any gains are. You have to keep good records for 20-25 years or more to figure the percentage of already taxed money vs. taxable gains when you take a distribution (complicated).

With a Roth IRA the money you contribute has already been taxed, and you pay no tax on any of it when withdrawn (unless gains are withdrawn too early). Contributions have already been taxed, so they can be withdrawn at any time (but avoid doing that before retirement unless in a real bind).

What you invest in for any IRA depends upon who you use for a trustee. Self directed IRA's (like with a discount broker) allow you to invest in CD's, mutual funds, stocks and bonds, etc. Or if you want to start an IRA (or Roth) CD, you can do that at a bank. Your best bet is to budget enough to max out a Roth IRA so you know how much you have to contribute to your 401k. The 401k would give you regular retirement money, hopefully in not too high of a tax bracket, and the Roth IRA could be withdrawn any time for major retirement expenses without any tax consequences.

But make sure you have some emergency savings, or if saving for something like down payment on a dwelling, take that into account.

As far as insurance, term insurance is the best buy. And when you reach the point that your investments and retirement savings can take care of any dependents, you may not need that any more.

Sat Mar 25, 2006 2:51 am

skhoury
New Member

Cash: $ 1.95

Posts: 9
Joined: 23 Mar 2006

Hey guys - many thanks for your replies, they are a big help!

So, now im looking into the T. Rowe Price Reteirment funds, specifically the 2035 - 2045 funds.

I was thinking of opening an IRA with them and using that as the vehicle.

Does that sound "sound" to you guys?

It seems simple enough which is what is attractive about it to me...but then again, that is probably why they designed it lol.

Thanks,

Sam

Sat Mar 25, 2006 5:37 pm

coaster
Senior Advisor

Cash: $ 1355.60

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Joined: 11 Oct 2005
Location: Wisconsin

Sam - I have my IRA with T Rowe Price, and I'm satisfied with the funds and with the service.

~Tim~

Eye Candy : Why Whimsy

Sat Mar 25, 2006 6:49 pm

skhoury
New Member

Cash: $ 1.95

Posts: 9
Joined: 23 Mar 2006

Ok, fantastic - that is good to know.

Do you know if the Retirement 2040 Fund is a "no-load" fund?

Thanks!

Sam

Sat Mar 25, 2006 7:13 pm

coaster
Senior Advisor

Cash: $ 1355.60

Posts: 6675
Joined: 11 Oct 2005
Location: Wisconsin

All Price funds are no-load.

Some have a redemption fee for shares held short-term. I suppose you could call that a back-end load. But it's just to discourage trading, and you're not going to do that anyway in an IRA. Wink