| Where should I go from here, (new guy) |
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Waxman
New Member
Cash: $ 1.65
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Joined: 02 Mar 2010
Location: Rochester, MN
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| Where should I go from here, (new guy) |
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Hello everyone. First day on the forum. Looking forward to using this. Ok, what I am looking for, is some advice about where I should go from here. I am going to give you a little background first. When I got out of the Marines in 1993 I immediatelty started working for my dad, in his construction business. I though money was just paper, and I lived like retirement was 100 years away, and I would never have financial problems. I lived this way until the business slowed in 2002. My Dad ended up selling out, and retiring, Leaving me out in the cold. I was married at that point, and owed $194,316.00. Of course reality started to sink in, and I got pretty scared. I ended up getting a decent job, and my wife has a good one too. The fear never left, and I went on a debt destruction lifestyle. Here I am 8 years later. I now owe $6862.89. This is all in a HELC, and a 07 jeep Patriot. WE have 15,300 in IRA annuities and CD's, and my wife has a 403B worth about $15,500.. I work seasonally since I am a cement finisher. When work starts again in the spring, I will be able to pay off the last of the debt, and be free. My question is then what? We both want to be financially set for retirement, and I think we are headed that way. Both of our jobs are Union and we each have a pension. I am hoping the pension, 403B, IRA's and savings will be enough, Does anyone have any ideas or directions we should go to make our future more comfortable?
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Tue Mar 02, 2010 9:48 pm |
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littleroc02us
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Cash: $ 180.50
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Uh Rah Marine! I too graduated from the Marine Corps in the mid 90's. Also, I can relate to the large debt you accumulated. Although, mine was only around 45k that I paid off in around 4 1/2 years. It was tough. My suggestion for you is to pay off the last of the debt and then start saving an emergency fund of 6 months and then began investing 15 % of your income.
1. Max out roth ira's through vanguard.
2. Fund other pre-tax retirement.
Then pay off your house.
Good luck.
“If you want to stay in debt forever, keep borrowing money.”
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Tue Mar 02, 2010 10:06 pm |
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Waxman
New Member
Cash: $ 1.65
Posts: 8
Joined: 02 Mar 2010
Location: Rochester, MN
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I guess I should have mention that the money owed was on 2 houses and toys. We sold my wifes house, and, and payed mine off 2 years ago. You mentioned other pre tax retirement funds, What else is there? Why do you recomend vanguard? Also I am 38. Thanks for your reply. Dave
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Tue Mar 02, 2010 10:41 pm |
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Creditnet_com
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Location: Seattle, Washington
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I agree, set aside at least 6 months' worth of savings. You may also be able to save money pre-tax by contributing to an HSA if you have a qualifying health insurance plan.
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Wed Mar 03, 2010 7:19 am |
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Waxman
New Member
Cash: $ 1.65
Posts: 8
Joined: 02 Mar 2010
Location: Rochester, MN
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Wow here I thought I was unorganized. I already have a HSA through the union, and I am in the process of getting another one that covers daycare expenses. I do have 6 months worth of savings, I was including that as a credit against the debit of what I owe on the HELC. Any other ideas? Here I thought I was a financial idiot. 
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Wed Mar 03, 2010 1:26 pm |
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Creditnet_com
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Okay, how about this (it may be a stretch):
If you do any outside contract work and payments are made directly to you or a business owned by you, you can open up a Solo 401K. By doing so, you can act as both the employee and employer when it comes to contributions. These are called "Salary Deferral Contributions" (employee) and "Profit Sharing Contributions" (employer). 2010 limits for 401K contributions (employee) are $16,500 (or $22K for 50 or older); this is the limit for "Salary Deferral Contributions". With a Solo 401K, you can also contribute from your business, which is the "Profit Sharing Contribution" portion. So as a sole proprietor, you could contribute an additional 20% of net adjusted business profits to your Solo 401K.
A simple example:
Let's assume you make $30K per year in net adjusted profits as a sole proprietor.
Without a Solo 401K, your annual contribution limits would be $16,500.
With a Solo 401K, your annual contribution limit would be $16,500 plus (20% x $30,000) = $22,500, all tax deductible.
Again, I'm not familiar with your situation, but a Solo 401K is worth looking into for anyone who owns their own full time business or side business. Otherwise, sole proprietors are taxed heavily by the IRS!
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Wed Mar 03, 2010 2:32 pm |
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Waxman
New Member
Cash: $ 1.65
Posts: 8
Joined: 02 Mar 2010
Location: Rochester, MN
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Ok, all of that sounds great, there is only 1 issue, I am not self employed. There are 2 reasons for this. 1) It looks very bad in the eyes of the union, and I dont want to kick my gift horse. 2), In Minnesota, if you own your own business, you cannot collect unemployment benefits. I doubt I could survive 4 months of winter with no unemployment benefits. There is also the fact that there would be no work in the winter, and in the summer, I already work 10-12 hrs a day, so no time then either. I know this sounds bad, but what we need it it to look like we dont make as much money as we do. Since we dont have a mortgage, we dont have much for tax deductions. This is the reason I opened up the HELK, and bought my midlife crissis corvette. I now realize this was not a very smart move, since I am paying peanuts for deductable interest on the HELK. (4%) Are there any other options out there? We are thinking about contributing Max to my wifes 403b, but the choices for the funds are all either risky, or money markets that pay 1%. It really sucks that I can get an IRA annuity for 5%, but only get 1% with her 403B
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Wed Mar 03, 2010 3:22 pm |
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oldguy
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Location: arizona
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quote:
Any other ideas?
A big part of your wealth will be determined by how you manage your $30,000 long term investing.
1. If you invest $30,000 + $500/m at 11% it will be $1,000,000 when you are 62.
2. If you invest $30,000 + $500/m at 3% it will be $250,000 when you are 62.
quote:
and I went on a debt destruction lifestyle.
You may have gone a bit 'over the top' with this. That 'debt destruction' is a good idea for credit cards, consumer revolving debt, new cars, toys, etc. But debt is an important tool in your business life. Eg, if you borrow $50,000 at 6% ($300/m for 30 yrs) it costs you $108,000. Then invest that borrowed $50,000 in a 11% fund and ignore it for 30 yrs and it grows to $1,150,000. (The power of compounding can be surprising.)
So that is a couple ways to earn $1,000,000 without cramping your lifestyle, most wage earners can either put $500/m into long term investments, or pay $300/m to a long term house loan - or both?
quote:
You mentioned other pre tax retirement funds, What else is there? Why do you recomend vanguard?
I use the SP500 Index Fund at Vanguard. Vanguard and Fidelity are the two major no-load fund companies - their products and services are nearly identical (they have to be, otherwise one would get all of the business and the other would go out of business). Other choices would be the Total Market Index Fund, or a Target 2040 Fund - these are good choices for all 3 account types - your taxable account, your 401k (pretax) account, and your Roth (posttax)accounts.
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Wed Mar 03, 2010 3:38 pm |
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Waxman
New Member
Cash: $ 1.65
Posts: 8
Joined: 02 Mar 2010
Location: Rochester, MN
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The 403B is a fidelity fund. Mostly a blended funds, and a low interest money market, in case the market craps out again. What is the 11% investment of which you speak? I hunted for weeks to find my 5% annuity.
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Wed Mar 03, 2010 6:14 pm |
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littleroc02us
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I am 39 years old so I have around the same amount of time until retirement. I have started later then most people myself, but I am investing heavily now. We have amassed over $100,000 in investments, but are maxxing out now at around $20,000 a year in contributions. Here is our situation. My wife and I already have 401k's through our work that we contribute 5% each and they match. So that is 10% for both of us. That will build over time. In addition we are maxing out our Roth IRA's each year. So, in my account for example I have 10,000 in a vangaurd index fund. Every year for 25 years I'm going to contribute $5000 each year maybe even a longer term like 30 years. But after 25 years if it makes 11% as Oldguy said, you would have $770,000 in my account alone. If you leave it in there for 35 years it would be worth 2.3 million. Not bad. Plus that doesn't include my wives account. So, just through a Vangaurd Index fund we could have around $5 million in 35 years from now. Then you include our 401k's and social security. We should be sitting pretty. The nicest part is we haven't borrowed a cent, no Levarage!!!!! Plus it is tax free.
“If you want to stay in debt forever, keep borrowing money.”
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Wed Mar 03, 2010 6:41 pm |
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oldguy
Senior Member
Cash: $ 275.70
Posts: 1316
Joined: 21 May 2006
Location: arizona
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quote:
Mostly a blended funds, and a low interest money market, in case the market craps out again. What is the 11% investment of which you speak? I hunted for weeks to find my 5% annuity.
You are way too young to be messing with annuities & 'income' products, leave them to us 70-yr olds.
Here is the deal, most of us are given about 30 yrs to build wealth. Then, at about 60 we must phase into our wealth preservation years, protect our wealth against market losses. But the very important part of that is the first 30-yrs. If you want to have wealth to preserve, you need to build it before you get old, ie you must invest, not sit it out in annuities.
Invest in things that appreciate at 10% to 12%/yr. It almost sounds like you are "waiting for the market to recover so that you can get back in". Think about that - do you want it to recover so that you can buy "high"? The perfect time to buy shares is when the market craps out - you want to buy cheap shares so that you will have jillions of them 30 yrs from now when the Dow is at 100,000. (Remember 30 yrs ago at Dow 1000? When they said Dow 10,000 was impossible?)
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Wed Mar 03, 2010 10:02 pm |
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oldguy
Senior Member
Cash: $ 275.70
Posts: 1316
Joined: 21 May 2006
Location: arizona
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quote:
Mostly a blended funds, and a low interest money market, in case the market craps out again. What is the 11% investment of which you speak? I hunted for weeks to find my 5% annuity.
You are way too young to be messing with annuities & 'income' products, leave them to us 70-yr olds.
Here is the deal, most of us are given about 30 yrs to build wealth. Then, at about 60 we must phase into our wealth preservation years, protect our wealth against market losses. But the very important part of that is the first 30-yrs. If you want to have wealth to preserve, you need to build it before you get old, ie you must invest, not sit it out in annuities.
Invest in things that appreciate at 10% to 12%/yr. It almost sounds like you are "waiting for the market to recover so that you can get back in". Think about that - do you want it to recover so that you can buy "high"? The perfect time to buy shares is when the market craps out - you want to buy cheap shares so that you will have jillions of them 30 yrs from now when the Dow is at 100,000. (Remember 30 yrs ago at Dow 1000? When they said Dow 10,000 was impossible?)
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Thu Mar 04, 2010 12:13 am |
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Waxman
New Member
Cash: $ 1.65
Posts: 8
Joined: 02 Mar 2010
Location: Rochester, MN
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No old guy, I am not "waiting to get back in" I have never been in. I have never personally traded stock. The fidelity account my wife had was in an aggressive growth fund, 100% stocks, before I switched it to more stable accounts. We lost about 10k in the last year and a half, and in the beginning of 2010 we lost an additional $400. I just didnt trust then yahoos with our money. I have never personally picked stocks, I wouldnt know where to begin. Are you suggesting investing my IRA funs in stocks? Not sure I am ready for that kind of risk. As for disposable income, I dont have any yet, but if all goes as planned, I will this summer. Maybe then I will try my hand at stocks. What trader do you guys suggest? Scottrade?
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Thu Mar 04, 2010 1:53 pm |
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oldguy
Senior Member
Cash: $ 275.70
Posts: 1316
Joined: 21 May 2006
Location: arizona
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quote:
No old guy, I am not "waiting to get back in" I have never been in. I have never personally traded stock. The fidelity account my wife had was in an aggressive growth fund, 100% stocks, before I switched it to more stable accounts. We lost about 10k in the last year and a half
quote:
What trader do you guys suggest? Scottrade?
OK, you are extremely risk averse. So you may need to stay with savings accounts and CDs.
The two appreciating assets are stocks and leveraged real estate - they fluctuate with the free markets, up & down every few years - but over the long term they trend ever upward at 10% to 14%/yr. That is what is required to build wealth - the key is that 12%/yr funds grow much faster than inflation (about 3%/yr) so your money compounds rapidly.
Savings accounts and CDs are designed for the safe storage of money, they pay 2% to 4% but inflation takes about 3% of your purchasing power - you gain nothing but you can't lose anything.
As for Scottrade - no, way too much risk. Owning individual stocks carries about twice the risk as the market index, and the return is about the same - so don't try to 'beat' the market by buying hot stocks. And don't trade, the winners buy funds and hold them for 30 or 40 yrs. The clients who traded in & out in the 12% market of the 80s, 90s, etc made only 3%, the 'keepers' got about 12.5% from the same stocks.
What Fidelity Fund did your wife have? I used what later became their Total Market Index Fund while I was still young & building wealth. IMO that would be a good one to use.
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Thu Mar 04, 2010 4:10 pm |
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Waxman
New Member
Cash: $ 1.65
Posts: 8
Joined: 02 Mar 2010
Location: Rochester, MN
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What she had was 100% hartford cap app y, I then took 10 k of it and put it in a 1% mm. The rest we split between the hartford cap, A freedom fund, and a energy fund. It is starting to make $ again.
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Thu Mar 04, 2010 4:40 pm |
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