Anyone here saving to a retirement account?

[Destructo-Bot]

I know quite a few of us have been here for a long time... Long enough that many should be planning for their futures. I'm curious how many of you over the age of 21 have a retirement account of some flavor (401K, Traditional or Roth IRA) and are regularly contributing toward it? We can also discuss how much we have saved and our average rate of return if there are good replies and everyone is comfortable with that.

 

[ShinRa]

I'm personally doing it myself until I make more money. I make a decent living, but currently, all my money goes towards building myself a less-than-mediocre lifestyle. A nice apartment, a nice car, etc. My plan is to eventually (soon) get promoted, and once those additional funds hit, setting up a 401K with my company, as they will match what I put into it up to 5% which is amazing.

 

[Destructo-Bot]

When you are talking compounding returns, a little money now goes further than a lot of money later. The contribution limit for IRAs is $5,500 per year which is $458 per month to hit the maximum yearly contribution. So after 10 years you'll only have put in a maximum $55,000... you'll need to rely on the rate of return to actually grow the fund into something you can live on for 25+ years which is why it's best to start as early as possible with as much as possible and slow down the investments later in life to purchase the nice things.

I'd say do whatever you can to get at least $10,000 into your retirement fund before you are 30. (That's only $60 per month if you started working at 16, or $166 per month if you start investing at 25). A typical rate of return shows an initial investment of 10k doubling in 10 years, so that becomes ~$20k when you're 40 if you stop contributing to the fund.

 

[DEATHMASTER]

I should look into this, I've been saving most of the money I've been making at my job for the last 2 years.

 

[nico]

It's mandatory over here (Australia). Employers have to pay 9.25% of your salary/wage into a retirement fund (always referred to as superannuation or super here), and people that earn enough can stash away whatever else they want into those funds too. Been paying $$$ into mine since I was 16.

 

[Destructo-Bot]

I should look into this, I've been saving most of the money I've been making at my job for the last 2 years.

I personally use Vanguard with a Roth IRA. Roth is an after tax IRA, your funds don't get taxed when you remove them and you also aren't forced to take disbursements from it when you reach a certain age (as you are with a traditional IRA). So if you are doing well financially when you reach retirement age, you can leave all of the money in the account to continue growing until you truly need it (or have it pass to your heirs if you never do).

If you are just getting started, the "Target Retirement (year you plan to retire) Fund" is a good place to begin. The Target Retirement 2050 Fund was my initial investment, but I rolled that over into the "Total Stock Market Index Fund (admiral shares)" which has one of the lowest expense ratios available. What that means is that you are charged a percentage fee to the fund to be managed, which is a percentage taken off of the fund's growth. So if you've got a 7% return on a fund with a 2% fee, your real return is 5%. That may not seem like a lot, but just like compounding interest, compounding fees add up to a tremendous amount of money over time.

Staying with the numbers I used above, 7% return with a 2% fee, over the fund's lifetime if your fund reaches $1,000,000, you would have paid $630,000 in fees. Meaning your fund would have been $1,630,000 without any fees. The Target retirement funds are around .15% to .20% which is pretty good. But the Index Market Fund (admiral shares) are .05% which is almost nothing. The caveat is that you need a $10,000 minimum investment for that fund, so you'd likely need to buy into a fund with a higher expense ratio until you reach that $10,000 minimum.

 

[MuToiD_MaN]

401k here. Matching has varied quite a bit from company to company. I've been dumping a steady large percentage into it and forgetting about the whole thing.

 

[Javert]

401K here also, with the company matching. Rate of return pretty good since the Great Recession.

 

[Destructo-Bot]

Your Rate of return being 10%? Lower? Higher?

 

[Krynn72]

401ks can lose money too though, right? My parents have a friend who saves his money simply into a checking account so he can't lose any of it. He does so some investing, but will often lock it when he's comfortable with the amount it earned, for fear of losing any of it. With the shady shit people got away with to cause this recession, and the fact that nobody really got forced to stop or be responsible for it, I can't really blame him for that mindset.

 

[MuToiD_MaN]

401ks can lose money too though, right? My parents have a friend who saves his money simply into a checking account so he can't lose any of it. He does so some investing, but will often lock it when he's comfortable with the amount it earned, for fear of losing any of it. With the shady shit people got away with to cause this recession, and the fact that nobody really got forced to stop or be responsible for it, I can't really blame him for that mindset.

Yes.

Here comes the longest post I have written on this site (which apparently is still not that long...)

With a 401k you are generally able to make safer bets with your money than putting it into the stock market by balancing your investments across stocks, mutual funds, and money markets. The last will not lose value because the market takes a downturn, but also will not return you any growth, while the first is riskiest but will generally give you a good return if the market is healthy (and you choose the right things to invest in, depending on the control your 401k plan gives you). The other benefit a 401k has is your money isn't taxed when you put it in, so that means you can generate retirement fund growth with money that would have otherwise gone straight to Uncle Sam, plus good employers often match your 401k contributions to a point, giving you more free money. If you're really good at managing a stock portfolio, something I'm WAYYY too scared to try, I imagine you can be more successful than with a 401k, but you have to deal with capital gains taxes and constantly watching your own ass as the market does its thing. Simply socking away all your savings in a checking account means it's generating zero interest, savings account still less than inflation, so your parents' friend's money is slowly diminishing relatively speaking. Maybe he's throwing more on the pile faster than its buying power shrinks and he still ends up with a nice retirement nugget at the end, but it doesn't sound like my idea of a good time.

 

[Destructo-Bot]

Mutoid hit the nail on the head with the savings account issues. If your friend isn't getting interest on that savings account that outpaces inflation, he is LOSING money in the savings account. You need to keep an emergency fund in savings, not everything you ever make. Your typical Joe will probably want $2k to $10k in savings, anything else should be used as investment capital.

The truth of the matter is, unless you generally expect that we'll hit another great depression (not just a recession, even a major one) then Index Funds (stocks) are the way to go as managed mutual funds haven't even come close to beating market index for a quarter-century. Plus with managed funds you are paying a fund manager a straight percentage off the top of your return... hundreds of thousands of dollars eventually.

Another thing to point out is that "pre-tax" retirement funds (401k, Traditional IRA, etc) need to be weighted carefully. If you fall into a higher tax bracket at retirement (who here doesn't expect to be making more money as they get older?) you'll be taxed at that HIGHER rate when you start drawing those funds out. With "after-tax" accounts (Roth IRA) your money isn't taxed at removal so you'll pay your taxes now... presumably at a lower rate. You need to figure out which is better over the long term. Also worth noting is that a company matching policy can be placed into a 401k Roth (after-tax) these days, you'd need to ask your HR dept if they offer that if the tax balance works out better now than later.

http://tcalc.timevalue.com/all-fina...ement-calculators/ira-vs-roth-calculator.aspx

Calculating it out, if I went with a 401k/traditional IRA I'd have lost $87,000 at retirement due to taxes vs the ROTH if I don't move up a tax bracket. If I DO move up a tax bracket, I'd have lost $454,775 to taxes with the traditional IRA. The only way I make more money with a traditional IRA (or 401k) is if I move DOWN a tax bracket as I retire.

 

[BabyHeadCrab]

Everyone over the age of 20 should have a fairly diversified mutual fund. And not the pre-configured ones from the super big investment banks. Find a place like we have in Milwaukee (Fidelity) or smaller and well run.