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Need help with retirement with not a lot of money

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lostat39
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Need help with retirement with not a lot of money  Reply with quote  

I am 39 years old, single male. I am getting married this year but have no children yet.

I have only had access to a 401k for the last 2 years or so when I switched companies. I currently have 48K in my 401K. I have an IRA with Schwab in blue chips that is around 25K. I have a couple of CDS with my credit union in another IRA account worth about 17K.

I have another couple small investment accounts worth about 10K that are non IRA.

I also have about 37K in savings account, 14k in checking account. I also own some physical assets worth about 20K.

My annual salary is about 120K per year(living in the DC AREA)

I have about 40K in equity in my house and still owe about 230K on the loan at 3.25% interest rate

I honestly have no idea what I am doing in saving for retirement. I am trying to understand what I should be doing with the large amount of cash in my bank account. I did get burned in 2008... and I feel like the current stock market is akin for a correction. Should I have my savings account invested or should I have it waiting on the sideline? Up until recently most investment brokers have had no interest in talking to me about strategy as I had next to nothing. I have no other debt besides my mortgage and I pay all credit cards off every month. I do have excellent credit score around 820. I have lots of reimbursed spending on those cards through work so I take the credit cards that provide cash back.

Any advice for me? I appreciate it. If I am doing the math right, I have a net worth around 200K. At almost 40 years old I cannot help but feel I am way behind on ever getting a chance to retire. The only thing I feel I have done right is keep myself out of debt(besides the mortgage)
Post Mon Jan 15, 2018 3:02 pm
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oldguy
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quote:
The only thing I feel I have done right is keep myself out of debt(besides the mortgage)


Ironically, the very thing that you consider 'right' may be what is holding you back.
Of your $200k, you have about $110k in non-growth items - CDs, savings, checking, home equity. And about $90k in growth items.

The important thing for you is to invest as much of your $200k into wealth-building investments. The generic US Stock Market has grown at an average rate of 11%/yr for many decades.

The Law of investing - risk and return are directly proportional - if you want a no-risk account, you must use savings accounts, CDs, or bonds, and settle for 4% of less. If you want an 11%/yr return you must accept a moderate risk and expect ups/downs.

In general most of us are given about 30 years for wealth-building and 30 years for wealth-preservation. When you reach your 60's or 70's, you need to stop making 11%/yr and settle for 4% or 5% items, if the market dropped (like in 2008) you would not have time to recover enough to pay for the rest of your life, you cannot afford that risk.

Here are a couple of the math examples - $200k invested at 11%/yr plus $500/m of new money equals $3.4M in 25 years. (Your $200k grows to about $2.7M, the new $500/m adds $760k. - so you have already done much of the work).
Example 2. During my working years I had some rental houses. I often borrowed an extra $50k on a house. An extra $50k loan costs about $268/m ($97,000 over 30 yrs). And $50k placed in an 11%/yr fund grows to $1,150,000 in 30 yrs.

In your case, your 'highest and best use' of your money (all but the $40k home equity and $20k belongings) would be 11%/yr funds. It doesn't matter whether you use IRA, Roth, Brokerage, 401k, etc - as long as you use an 11%/yr investment. The thyp of account just affects the tax-status, not the investment. Eg, with an 401k/IRA, you pay the tax when you sell, with a Roth you pay the tax before you invest the money, with a brokerage account you pay the tax before you invest & cap gains on the profit when'/if you sell.
Post Mon Jan 15, 2018 5:19 pm
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