| is retirement possible???? |
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spikeymikey
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| is retirement possible???? |
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I Just turned 23 and have always been pretty good when it comes to my money. I recently maxed out my 401k to 25%.....but I don't see how even if i made $80,000 a year on average.....I just can't see getting to that million dollar mark......I mean between paying for everything else.....cars, a house...
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Sun Nov 27, 2005 11:55 pm |
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SkyPilot
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| You can make it... |
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Spikeman,
The key to your situation is lifestyle, I think. If you must drive a new car, live in a house larger and newer than your needs and choose to send your kid to Ivy League or private schools to get their BA/BS or whatever, then you will likely find yourself in a tight squeeze.
You are already well on your way to financial success, if what you describe is accurate. Now, you must evaluate what your needs are vs wants.
I drive 10 year old cars, (sure, maintenance and repair is higher, but no payments and only liability insurance), lived in older homes (just built a new one 5 years ago, and appreciating nicely) and my sons are going to state college in the town next to us (the truth being, a BA/BS from a prestigious school is not a major requirement as you can get into the pedigreed schools for your Masters work if you have the grades. Save a fortune! 5k per year vs 20k and up).
Also, you will likely be sharing the burden as well as the income growth with a spouse. So, choose well and avoid divorce, which will likely be devastating emotionally, spiritually and financially.
Finally, make regular monthly contributions to your retirement account and leave it in a "lock box". Live off the rest, but treat your retirement as sacrosanct, for if you tap into it, it will cost you real dollars at the ratio of 4:1 or more in retirement when you need it. Example, that $4000 dollar vacation will have cost you real dollars of at least 16k in your golden years when you need it most, and that mocha latte for $4.50 is really closer to $20 in retirement bucks.
Just a few tips, there are many other factors to add in that can increase your potential for success. How about the rest of you advisors? Chip in here and help this guy out!
Just my observations, not necessarily true or accurate, but they seem to be working well in my situation.
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Mon Nov 28, 2005 2:54 pm |
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moneymatters
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how does your post make retiremnet seem impossible
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Sat Jan 07, 2006 8:21 am |
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domingo3
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Doing some reverse math, if you have $10K in your 401K and you've been putting 10% in for 5 years, that means you're earning about $20k per year.
Your income will probably have to grow to hit that $1M mark at an early age. Not to make things seem more desperate, but you will likely need more than a million to retire.
In addition to income growth, which is likely, it sounds like you may not fully appreciate the power of compound interest. You've got 50k after 5 years. If you keep it up for another 5 years, you should have a lot more than double what you have now.
Are you getting some kind of discount or company match in the purchase of company stock? If you are, great, but I caution you against putting all your eggs in one basket. If your company goes kaput, you lose your job and your nest egg gets flushed down the toilet all at once. Sure it's not likely, but it's a significant risk.
Since you are in a low tax bracket, I'd encourage you to open a Roth IRA. Get whatever match you can on the 401K, then put your additional money into a Roth up to the max. If you still have more, put it in a 401K or put it in a taxable account to save up for intermediate expenses like wedding, downpayment on a house, etc.
You're way ahead of the game, as about half the baby boomers have less than you have saved for retirement. You've got time on your side. Albert Einstein said that compound interest was the greatest mathematical discovery of all time.
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Sat Jan 07, 2006 3:27 pm |
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Jaszbo
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Ok don't just listen to what people say, learn for yourself. Most people say 1 million dollars in retirement, because it's advised to take out about 4% a year. If you have a million dollars, that means you can live on about 40k a year. If anybody gives you another number besides 4 or 5%, dont' listen. Also factor in inflation, your age and other factors. 4% or 5% is the only resonable value you should take when retireing, but you'll need to increase it with inflation each year about 3%, so if you took out 40k on year, next year it would be 41,200 dollars.
How much do you make now? Let's make an assumption that you make 50k a year and let's assume that around 50% of your money goes into morgage and when you retire I hope you'll have your mortgage paid off, so if that's around 50% give or take of course, becuase we have to calculate taxes and insurance, but it makes it easy to say 50%, so if you are making 50k, you can live off of 25k. Then if 1 million gets you about 40k a year as of today, could you live off of 25k? Your kids will be gone, isn't 25k reonsable? You won't have any car payments.
Also remember your 50k I'm assuming (stupid assumption, but makes it easy), you are putting away 25%, so if you are making 40 in retirement are you putting anything away? So even with 500k in retirement you would have lets 20k. Could you live off of 20k, as you would pass less in taxes (lower tax bracket), no kids, no savings for retirement and hopefully house and car would be paid off.
You shouldn't take into consideration social security or pension, but if you can it's an added bonus. It also depends on what age you are planning on retiring.
My personal opinion is that you need a Roth IRA also and not just a 401k plan. You want to invest money in both pretaxed and after taxed dollars. Say you are payig 25% taxes today. Let's say taxes go to 15% for the average american (that's what is suggested by the panel right now), what would be better to have a 401k plan or a Roth IRA? Let's assume that when you retire and taxes are 30%, would it be better to havea Roth IRA or a 401k plan?
If you don't understand what each one is. The 401k plan you pay your taxes when you retire. With the Roth IRA you use money in your checking that's already paid the taxes.
My point is don't guess about if we are going to pay more taxes or less taxes. Do both the 401k plan and Roth IRA. What I advise is first do matching on your 401k plan and then go and max out your Roth IRA. A Roth IRA right now is 4k. Then go back to your 401k plan and max that out also if you are able to. Let me tell you if you do this at 23 years of age, you can retire when you are in your 50's or 60's depending.
I'm a big advocate of a Roth IRA and I could write a book on why you should have one. But let me just say a few things, you can have it as an emergency fund, you for college, other emergencies without penalty, taxes...etc
Also since you can pull out your contributions anytime, in which you can't with your 401k plan. What if you want to retire at 50 instead of 59.5 like the 401k plan? With the roth you can do that if you contributed enough, you can take out your contributions. The IRS assumes that anything take out first is your contributions and then it's earnings.
Believe me if you are at least maxing out a Roth IRA and getting your matching contribution at your 401k plan you are ok. I advice people to do 10% in their 401k plan and max out the Roth IRA. If they can max both great.
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Sat Jan 07, 2006 5:29 pm |
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efflandt
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I don't know if you are ahead or behind where I was at age 23, with a college education (paid for with summer jobs and part time work) and no debts, but no savings.
At age 53 if I make less than 8% on my 401k, I will not have my first million until after I retire. But my 401k gain averaged 15% 2004 and 2005, I have maxed out my 401k and Roth IRA contributions, and am moving IRA funds from CD's to self directed investments. So with any luck that will come sooner.
At your age and considering inflation, you will likely need more than a million to retire. But you also have more time to consider investments that may fluctuate, but have better long term returns than conservative funds. So you should look over investments available in your 401k and also consider putting any extra money (or a portion of your 401k contribution) in a Roth IRA.
The only disadvantage to a Roth IRA is that you initially pay income tax on the contributions. Some advangages are that you can draw the contributions back out if you really need to, gains are untaxed (if qualified), and there are NO required distributions. You also have a wider range of investment choices.
Note that the 401k will be taxed at whatevery your tax rate is when distributed and requires taking periodic distributions by age 70.5. Also having a Roth IRA with untaxed distributions would give you some flexibility.
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Sat Jan 07, 2006 8:23 pm |
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No-Brainer
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| Simple solution |
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I am looking back instead of forward and if I had it to do all over, I would put it all in Real Estate!
My IRA was whacked when the Dot Com bust happened and never has come back. I sold everything and put it into my house.
Bottom line, no savings, no stocks, no problem. I owned my own business (which is what I tell all my kids to do) and sold it when I retired. I also sold the building I used for an office and a vacation home at the beach, all Real Estate. I have enough cash flow to last me 20 years (to age 87), at which time I will sell my home and move into an old folks home and have enough to last me until I cash in my chips.
Buy Real Estate!
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Sat Jan 07, 2006 9:22 pm |
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Jaszbo
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I disagree when it comes to real estate. Not that I don't like real estate as in just one house recently in 2 years I made over 150k, but the comment of "I would put it all in Real Estate" is what bothers me. I have a family member that has been making a killing for years, owns over a 100 properties, but she lost half a million in the stock market, so doesn't trust anything, but real estate.
I think a good plan is to have both a real estate plan and an investment in paper assets. There's so many benefits of real estate, such as you can improve the worth of your holdings, you cant' get that from paper assets. I see the benefit in both, just like I see the benefit in having both a 401k plan and a Roth IRA, I see the benefit of having both managed and index funds as well...
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Sun Jan 08, 2006 3:19 am |
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No-Brainer
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| Not theory |
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I felt compelled to post when I saw the first five responses to the young mans query were so heavily weighted toward stocks and cash investments.
My observations are not based on theory or financial planning, they are based on actual life experience. I am so happy that I followed my grandfathers advice to buy Real Estate and can now look forward to a comfortable retirement.
I'm afraid that your tale of the family member who has 100 properties providing solid assetts while losing half a million in the stock market just lends credence to my suggestion. Again, an actual experience, not projected theory.
I feel VERY comfortable telling my progeny to invest if Real Estate FIRST and put only what they can afford to lose in the markets. I have watched real time quotes from Window on Wall Street go streaming across my dual 19" monitors while the big boys manipulated the market. I stood helpless as Intel made an announcement after the market closed that cut it's stock in half before it opened to normal trading again the next morning and has YET to recover.
You put all the money you like in the market, just make sure you are young enough you can wait for your losses to come back, if they ever do. I can personally say that in 47 years of putting money into Real Estate, I have never lost a penny, not even for a moment. Everything I own today was a result of reinvesting the profits from the original $500 down payment my wife and I put on our first piece of property. It paid for the series of homes we bought and sold, vacation properties our family enjoyed and provided the capital to start our own business and buy commercial property to run it in. Finally it paid cash for the condo system we now have to live out our truly Golden Years http://PictureTrail.com/warren65
I am not rich, or even what I would consider well off. The only thing I can be thankful for was the $35,000 I lost overnight in the market was money I had earned from it the few years before. I also rejoice that I was smart enough to quit while I was still ahead instead of continuing to have stars in my eyes as I dreamed of what all that easy money could do for me. The shock of having three years efforts go up in a puff of smoke overnight was a feeling I will never forget.
I make no recommendations as to what others should do, only add my personal experience as something to ponder as they decide. In the end, it's all up to them.
To a prosperous OhSix,
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Sun Jan 08, 2006 5:30 am |
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Rolo
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| Re: is retirement possible???? |
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quote:
Originally posted by spikeymikey
I have also been buying stock in my company since i was 18.....my total net worth is prolly $50,000 $40k in company stock and 10k in 401k.
Your company stock is not in your 401(k)?
Is your company stock something you would buy if you didn't work for the company? i.e. Is it making money?
What is the other $10K doing?
Be sure your money is in quality investments that are on-par with--preferably better than--what the market is doing (stock market average is ~11%). Keep your contributions going and you will get to your first mil, no problem.
Google a retirement calculator and fiddle with the numbers to give you an idea of how the greatest discovery, according to Einstein, of the twentieth century--compound interest--works.
"Expect me when you see me."
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Sun Jan 08, 2006 11:33 pm |
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auggyf
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| Re: Simple solution |
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quote:
Originally posted by No-Brainer
I am looking back instead of forward and if I had it to do all over, I would put it all in Real Estate!
Looking back, I should have put all of my money (and taken out additional loans as much as possible) into Real Estate. Or Google stock @ IPO. Or that one hand of blackjack in which I won (100% return with minimal effort, and it took about 20 seconds!).
The key phrase here is "looking back." Since you can't do that for decisions you make now for the future, the best you can do is to maximize returns for a given risk level (or minimize risk for a given expected return level). Putting all of your money in one investment class (ie real estate) is not the way to do it.
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Thu Jan 12, 2006 4:06 pm |
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auggyf
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| Re: Not theory |
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quote:
Originally posted by No-Brainer
You put all the money you like in the market, just make sure you are young enough you can wait for your losses to come back, if they ever do. I can personally say that in 47 years of putting money into Real Estate, I have never lost a penny, not even for a moment.
Congratulations on your successes. However, as investment advice we all should take this with a grain of salt.
A $1000 investment in the S&P 500 index in 1958 (47 years ago) would be worth about $31,000 [source: Yahoo Financial historical prices]. I have not been able to find how a general real estate investment would have performed over the same time.
About not losing any money, 'not even for a moment,' that in general is not true. Because real estate is less liquid than stocks, it's difficult to determine when prices have gone down. But historically prices have decreased or underpaced inflation. Having a mortgage only increases the risk -- you can gain or lose a lot more from your initial investment if you are essentially buying on a margin.
You may have had bad experiences with equities, and I understand that. There may have been many factors which caused this, but this should not discount the whole class of investments. There are similar people who have had very bad luck with real estate investments.
Just like everyone has had their own personal experiences, my advice would be: we cannot predict the future, so after evaluating your risk tolerance, consider all of your investment options, make wise selections and diversify. Over time, rebalance and re-evaluate your riskiness/time horizon. Keep in mind your tax situation and any fees for your investments.
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Thu Jan 12, 2006 4:27 pm |
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No-Brainer
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| Re: Not theory |
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quote:
Originally posted by auggyf
A $1000 investment in the S&P 500 index in 1958 (47 years ago) would be worth about $31,000 [source: Yahoo Financial historical prices]. I have not been able to find how a general real estate investment would have performed over the same time.
My $500 investment in Real Estate in 1971 (35 years ago) is now worth $500,000. That's good enough statistics for me.
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Because real estate is less liquid than stocks
That's interesting, I needed some cash to finance a car for my son the other day and went to my bank where I applied for a draw against my Line of Credit seucured by my Real Estate holdings and had the money the nxt day. I don't think that is bad liquidity, do you?
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There are similar people who have had very bad luck with real estate investments.
I would venture to guess that considering the last five years the balance is weighing heavily toward bad equity investments.
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Just like everyone has had their own personal experiences, my advice would be:
As I said above, I'm not giving advice, just sharing experiences.
Have a Grand OhSix,
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Thu Jan 12, 2006 11:15 pm |
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auggyf
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| Re: Not theory |
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quote:
My $500 investment in Real Estate in 1971 (35 years ago) is now worth $500,000. That's good enough statistics for me.
Is it true that you were able to purchase that home (or required no additional payments) for $500? Most likely, the $500 was the downpayment and you had additional monthly payments. To compare this properly, we should compare returns as if you purchased the house up front. Or, if you'd like, we can compare buying a house on a margin ($500 down) vs buying the stock market index on the same margin. The one difference is that the federal and most state governments allow you to deduct interest on your home, but not on other margin investments.
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Because real estate is less liquid than stocks
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That's interesting, I needed some cash to finance a car for my son the other day and went to my bank where I applied for a draw against my Line of Credit seucured by my Real Estate holdings and had the money the nxt day. I don't think that is bad liquidity, do you?
I was referring to buying and selling residential real estate. Because homes are utilized by the inhabitants, and there are high financial, social and emotional costs to changing residences, it is difficult to measure accurate and minute changes in housing prices. Most measures look at prices of homes that were sold -- but this does not include home prices of those that aren't sold. For equities, which can be traded instantly with minimal cost (and all shares are equivalent), it is very easy to determine the market value. I am not trying to say that homes are a worse investment than equities, only stating the fact that they are less liquid.
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I would venture to guess that considering the last five years the balance is weighing heavily toward bad equity investments.
In the past 5 years, I completely agree with you. Over a 5 year period, real estate has certainly outperformed equities. I would not necessarily expect this to be the case in the future or over other periods historically.
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Thu Jan 12, 2006 11:42 pm |
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Rolo
Yo' Daddy
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| Re: Simple solution |
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quote:
Originally posted by No-Brainer
I am looking back instead of forward and if I had it to do all over, I would put it all in Real Estate!
Monday morning quarterbacking is of no value.
quote:
Originally posted by No-Brainer
My IRA was whacked when the Dot Com bust happened and never has come back.
1. Bought high, sold low, didja?
2. It did come back. If one kept investing, DCA, one would have made up the loss.
3. Real Estate bubble? (probably not, but it can happen)
In 2003, I met many who swore off stocks/mutual funds forever. I doubled my money +3% that year.
quote:
Originally posted by No-Brainer
That's interesting, I needed some cash to finance a car for my son the other day and went to my bank where I applied for a draw against my Line of Credit seucured by my Real Estate holdings and had the money the nxt day. I don't think that is bad liquidity, do you?
You can neither buy nor sell a property as easily (or cheaply) as you can a stock/mutual fund/bond. Additionally, you need a loan or lots of cash to buy real estate as well as good credit history.
"Expect me when you see me."
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Sun Jan 22, 2006 2:35 pm |
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