Can we talk about retirement/savings/investments?

[Free Thinker]

I don't ever see many threads on this topic, but I"d love to know what other families are doing regarding a retirement plan. DH and I have our own business, so we basically have to fund our own retirement. We have been purchasing IRAs the last 3 years, and in the last year we put them into a mutual fund. It drew almost 9% this year, so that was good, IMO, anyway. We just have no clue when it comes to this, and we don't know how much we need to be laying back. We are saving for a house as well, and we still need to keep a certain amount of $$ to operate our business on. We are in the 25-30 age bracket, if that makes a difference, so I figure we have lots of time, but we are planners, and don't want to fall behind! How do we figure out how much $$ we need saved, and how the interest compound over the years (like is there a chart or something?) Any links appreciated!

[mamajessica]

:
We have lofty goals here, and very very little extra money really.

[Shiloh]

well what are your life goals?
First I'd say balance it between paying the house off asap and any consumer debt but maximizing your retirement savings options is always a good idea when you are under thirty as whatever you put down now would take you like 4x as much after 40 or something like that..

Basically you need to think what annual take home income in the bank to generate a pension for yourself.

So lets say I think 30k a year I could live off me and hubby retired.
In todays dollars I'd need about 500k in the fund if I was drawing 10% and there was no inflation... But realistically inflation goes up and down so think more 5%-8% average and take into account tax rates.

So If I want 30k a year I may need a before tax amount of 50k to get that.
So I need a principal end amount that would get me 50k interest a year, plus assuming I am allowing enough of the interest money to stay in to match inflation lets say 2% inflation... So assume payout interest is 5%, inflation is 2%...so I need really 70k a year for the fund to generate just for me to keep drawing that same 30k income. Realistically you have to have about a million.

[rsps]

there are alot of online calculators to help you figure this stuff out.
http://www.fool.com/calcs/calculators.htm?source=LN
http://cgi.money.cnn.com/tools/retir...entplanner.jsp
http://www.choosetosave.org/calculators/

[Free Thinker]

I did one of those, and it said I had a 42% chance of making it? How do I improve this?

[sarasprings]

This month's kiplingers magazine was largely devoted to retirement. I'm making DH read it because there's so much info in there. There's a good chance your library would have it.

[jentilla]

For me it all depends on when you plan to stop working. Today, many retirees have a second career, home biz or do freelance work, etc. Most can't afford to retire completely and live the lavish baby boomer lifestyle they are accustomed to.

My dh is a professor (he will finish the Ph.D in 2 yrs and go back FT), right now an university adminstrator, and teaches online courses for extra money. He will likely be at a university for around 30-35 yrs and then work PT teaching online or in the classroom until they kick him out. As soon as the kids get a bit older I will work on my MA and teach as well, likely as an instructor without tenure, but I prefer it that way.

Currently, the university he works for contributes a whopping 9% to his TIAA KREF account and we contribute 6%. This is awesome and we have watched our savings grow rapidly. I also have an IRA worth several thousand and by the end of this year we should be able to regulary contribute to it again. Saving a total of 18% is our goal.

We plan to go down to one car when DH takes a position at another university and we will buy a home within walking distance. Maintaining a frugal lifestyle should insure a comfortable retirement, and since we both have chosen careers that are less physically demanding, but intellectually stimulating, allowing for extended employment, we feel secure.

MY FIL retired VERY secure at 53 and my MIL now teaches (she never worked until he retired) at a university making 35,000 a year. My FIL gets all the money mags and they are very helpful to read and pick up tips! HTH's!

[Belleweather]

Our current retirement plan is to inherit a lump sum from my mother. : I hate that that's our only plan, so obviously this is something that we need to work on. But I get most of my finanacial planning info from my mom, who constantly tells me "You and Nathan don't need to worry about retirement, that's what I have life insurance for!", so I don't know where to start and don't want to talk to her more about it because, well, it's too morbid.

Does anyone know a website where you can get the basics on the changes in rules for IRA accounts? I know it used to be that you could only contribute if you had earned income, and since we didn't then (2 full time students) we didn't start one... now we're starting to have part time positions in our fields and should start building an IRA, even if it's in dribs and drabs.

[mightymoo]

Both DH and I have 401ks, mine we will be rolling into an IRA since I left work. DH continues to contribute the maximum to his 401k each year. We have a financial advisor who has detailed a retirement plan and investment strategy for us and though yes we have to pay him a percentage we are making a much larger percentage return on our money than if we didn't have one, so its beneficial to do it. We tend to get caught up in the day to day and don't have the time or expertise to make sure we are investing in the right areas.

I look at DH's parents - they are by nature frugal folk and as a result have a sizable retirement, three pensions between them before social security and a lot in investments; some of which we will probably inherit, because its just not in their nature to throw money around like crazy, so I can't imagine then spending it all. We really try to use them as models for our financial planning.

[Amys1st]

I congrats for thinking this way and not even 30 yet- super!!

You are right to start saving now. You should be socking away at least 10% of your income annually for retirement. We are 33 (dh) and I am 34. We have almost 80K saved now and we started when we were about 27. With inflation etc if we want to retire at age 65, we will need 4 million or so. The younger you start, the better you are. Compound interest is an interesting thing. If you put away 3K at 18 and leave it, it will be so much more than if you do the same at 26. So keep adding and whatever you do - as my father says-

DO NOT touch the principal!!

I might add he retired at age 58 and has 2 homes - one in Chicagoland and one in Florida where my parents spend the winter. He paid for 3 kids to have their college education and their weddings as well. He also put himself thru school while he and my mom also were raising kids. They have about 3 million in the bank to live off of. They lived a nice life but they taught us to live frugally and to build up your nest with real estate, retirment and of course savings. I might add dh's parents did the same thing and are 75 years young and live very comfortably.

[annekevdbroek]

It is shocking when you see a figure like 3 or 4 million for retirement. It feels like we'll never get there. We fortunatly are able to maximize the retirement savings available to us. My husband is in the military so we contribute the maximum to the retirement savings (no matching, but tax free) which is 9% of his income, we maximize our IRA (4000 per year each) and try to tuck more away into a target retirement fund.

If you are self-employeed you may be able to do a SEP-IRA (self-employeed IRA) which allows you to put something like 25% or 30% or up to 30K a year into an IRA account TAX FREE. I was self-employed for two years and did this for huge tax savings.

I think it is important to get into the habit of saving for retirement and not touching it. Even if you only put $25 or so a month - you've at least started. I started an account with just rebate checks, small gift checks for birthdays, change that collected around the house (e.g. rolls of pennys, etc.), loose money that came by way - and in a few years I had $1200!

We work really hard to live at or below our means so that we can save as much as we do. We know quite a few people with similar incomes who drive new and larger and more expensive cars, have houses 2x or more the size of ours, take expensive vacations, designer clothes, - but have no retirement savings, no savings for thier kids college, and tons of debt..... We do "look" poorer than they are....

[Amys1st]

Originally Posted by annekevdbroek

We work really hard to live at or below our means so that we can save as much as we do. We know quite a few people with similar incomes who drive new and larger and more expensive cars, have houses 2x or more the size of ours, take expensive vacations, designer clothes, - but have no retirement savings, no savings for thier kids college, and tons of debt..... We do "look" poorer than they are....

I wonder who is going to look poorer down the road. They are not going to retire when you do since they will be too busy paying for today and tomorrow then but it will be called yesterday by then.

I read in Dave Ramseys book an interesting quote- "People who love eating dog food have no need to save for retirement. "
it was along side-
"Live like no one else so you can live like no one else."
"No one ever got rich on Discover cash back dividands"

[mightymoo]

Yeah, the nice thing about keeping your money in a 401k or IRA or similar is you are less tempted to try to use it as there are penalties if you use it before a certain age.

If anyone has their retirement money in a regular savings account - look carefully at how they are invested. With inflation now a days, money in an average savings account earning only a few percent interest won't beat inflation - and so can actually be losing money over time. When you are saving for retirement, you know you won't need to access this money immediately so you can take advantage of higher-yield products which might tie your money up for 12 months at a time or whatever.

I heard Suze Orman make a very interesting comment on her show a while back. She basically said that you should make sure your retirement is completely financed before even thinking of paying one cent for your kids college educations. Her reasoning was this - No one is going to give you a possibly subsidized low interest loan for you to retire on! I just found that to be an enlightening thought.