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Dad3
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loan from 403b  Reply with quote  

I have 35 k approx in my retirement, is it a good idea to take a loan on it for
e.g start a new bussiness ?
Is it a collateral loan ?
Will it save me interest money which otherwise will apply to a personal loan ?
Post Sun Jul 31, 2016 10:01 pm
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oldguy
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Even if the loan was interest-free, you would be taking the borrowed money out of service. Most 401/403 Plans have an Index Fund that earns an average of 11%/yr, if you are now putting in $5000/y that will compound to $1,100,000 in 30 yrs. But if you interrupt the compounding , say for 5 yrs, you'll have $635,000 in 30 yrs. So it's expensive to stop.

The other issue is if anything causes you to fail (eg, if the business fails to launch). Or if you have to move for a job change. When that happens your loan is immediately due. And if you can't pay, your loan counts as a dispersal - ie, you pay Fed Tax, State Tax, plus a 10% 'early' penalty. You keep about 55% net.

No, not a collateral. The lender has no need for collateral, they hold all the cards - ie, the rest of your 401/403.

It would save a little interest, but at a huge price - the negative point above.)

BTW, some say lenderd that it's a good deal because you are paying the interest to yourself - but if that's good, why not pay yourself 25% and make more money? lol

Personally, I would (and did) focus on making certain that the $1.1M is on track. Ie, fund the secondary investments/businesses from elsewhere. (I often refi'd a rental house and removed the equity - and invested that money elsewhere. US Mortgage money is among the cheapest in the world - you can walk into a bank, ask for $200k or $300k, ask for <4%, ask for a 30 year fixed rate guaranteed - and get the loan, other nations require "resets" )
Post Sun Jul 31, 2016 11:09 pm
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Dad3
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Thanks for your advice
I started saving for retirement late unfortunately, Im 36 and only 30 k odd in my 403b any advice on how to catchup ?
Post Mon Aug 01, 2016 3:32 am
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oldguy
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quote:
Im 36 and only 30 k odd in my 403b any advice on how to catchup ?


It depends on your income stream, steady? And your time horizon.

If you plan on working for the 'normal' span, say to age 66, that gives you 30 yrs. You could put $5000/y into the 403b and use 11%/y investments, that gives you $1,800,000. Or, $10,000/y gives you $2,800,000.

A key factor is the return - the $1.8m would be only $735,000 if you used a 7%.y return. Ie, your choice of investment has a major effect on your far-future.

In my experience, a steady income trumps a high sporadic income, the compounding is never interrupted. And never allow anything to derail your 403b investing - if your plan is to stay in 11%/y products and add $5000/y, stay on track - never sell, never skip.
Post Mon Aug 01, 2016 2:34 pm
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Dad3
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quote:
Originally posted by oldguy
quote:
Im 36 and only 30 k odd in my 403b any advice on how to catchup ?


It depends on your income stream, steady? And your time horizon.

If you plan on working for the 'normal' span, say to age 66, that gives you 30 yrs. You could put $5000/y into the 403b and use 11%/y investments, that gives you $1,800,000. Or, $10,000/y gives you $2,800,000.

A key factor is the return - the $1.8m would be only $735,000 if you used a 7%.y return. Ie, your choice of investment has a major effect on your far-future.

In my experience, a steady income trumps a high sporadic income, the compounding is never interrupted. And never allow anything to derail your 403b investing - if your plan is to stay in 11%/y products and add $5000/y, stay on track - never sell, never skip.

wise words ...
yes my income is pretty steady so far thank God
and I do plan to work till 66
should I contact my financial planner to check if my plan is in the 11% products ?
Post Mon Aug 01, 2016 7:55 pm
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oldguy
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quote:
should I contact my financial planner to check if my plan is in the 11% products ?



You can probably check it yourself.
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.V5_IFzWyDSZ

This site shows the US Generic Stock Market (SP500), you can check a few 30-yr-blocks of time, they get about an 11%/y return. The most recent 30 years, ending last month, averaged 9.81%/y. Not a very good 30-yr-block - but not too bad.
Almost all 401/403 Plans have an SP500 Index Fund, that's an unmanaged fund that replicates the SP500 Index. And because it is unmanaged, the fees are very low, about 0.1%/y. Personally, I put 100% of my investments in the SP 500.
Post Mon Aug 01, 2016 10:15 pm
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