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Need advice to plan for retirement

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Money Talk > Retirement Planning

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becky21
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I don't think paying off debt and saving for a home at the same time is a wise choice. It will take twice as long to do both. I would put all efforts towards paying off the debts first. The debts are restricting you from getting things done.


Agree. Will redirect to pay these loans first.

quote:

gain, you can easily buy a house if you want one - you have far more financial depth than most home buyers - ie, you have a net worth of $228k + car value - $42k -$12k, about $190k. (Many first-time buyers have a negative NW, student loans, car loans, yada). And your large income stream dictates your ability to service the loan. (BTW, don't plan on a tax break from the mortgage, lots of people are fooled by this).
As for a 20% down payment - I always try to buy with a minimum down payment - 3%, 5%, 10%, etc. I don't want to lock my money into house equity, I want it available for other investing.


Agree. But just for my comfort level, want to be over with the two loans. Three loans are a lot to handle. Also, $42k loan is already subtracted from the $228k. Now I am adding it back to the account.
Post Fri May 29, 2015 3:31 pm
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oldguy
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Why overpay and then wait for the refund!!! May be its one way to save.


Interesting isn't it? FDR needed 'front' money for WW2 so he invented 'withholding', before that folks paid their taxes on April 15. And then the practice became institutionalized - and now most americans would be incapable of managing their tax bill - eg, writing a $23,000 check on April 15. The average refund in 2012(?) was $3003. So for the 150,000,000 returns, that is about $450 Billion of overpay that the Govt has to refund between Jan & April every yr. Wow.

As you say - it's one way to save. But it's costly - I keep my stash is in the SP500 earning 11%/yr during the Jan to Dec tax year and during Jan to April the following year. (Altho some folks think only in terms of the 0.2% savings account rate.)
Post Fri May 29, 2015 3:39 pm
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littleroc02us
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Just because I'm a numbers guy and I keep a very detailed bi-weekly budget. Would you be willing to write up your budget here so that we can assist you with your debts. Getting organized is the first step, right now I'm a bit confused by your details.

In one column put your net income and in the second column put your daily exenses such as: food, cable, phone, entertainment and fixed payments such as: 401k payback, car payment, etc. In a third column include investments that you contribute to that are rough estimates such as your Roth IRA or other tax deffered accounts. You won't need to include work 401k's because that's already been deducted from your Gross income.

I look forward to seeing more details.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Fri May 29, 2015 3:51 pm
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becky21
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I got the Federal withholding updated to 1 from 0.

Littlerock - I will create a budget list and post it soon. Thanks for helping out.
Post Fri May 29, 2015 6:49 pm
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oldguy
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Going from 1 to 0 will take it the wrong way, you'll need to go up to 2 or 3
Post Fri May 29, 2015 7:18 pm
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becky21
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I did 0 to 1. Smile
Post Fri May 29, 2015 7:45 pm
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oldguy
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I did 0 to 1.


Good, that should cut the withholding by about $2000.

A "2" would cut it by about $3200.

One time, when I had 4 rental houses, I had to use "9" on the W4 and I still overpaid & got a small refund.
Post Fri May 29, 2015 9:47 pm
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becky21
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I might change it to '2' as well and use the money to put it back to retirement account.
Post Sat May 30, 2015 1:24 pm
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littleroc02us
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First off, I'm super impressed that your investing 38% of your net income. That is remarkable. Not many people can say that. Secondly, I know your worried about getting your two loans paid off and having enough money for retirement.

I also noticed that your income tax is at 26% of your income, which means your getting a refund that you don't want every year. Your missing out on money you could use to pay down bills. Most people believe a refund is a savings plan of some sort, but to me I don't want to give the gov't an interest free loan on my money, when I could be using it to either invest or pay down high interest loans. It sounds like Old Guy already pointed this out and your on the right track with this issue.

As for 401k loan and truck loan, I have an idea for you. Want not cash out the 10k in the CD's only making 2% and pay all of it towards the truck loan and that only leaves 2k on that loan. Stop contributing to your Roth IRA for now, you stated that you already have $3500 of the max $5500 for the year. Use that extra $350 to pay and your disposable cash of $900 that you calculated and put that $1250 towards paying off the truck loan which would take less then 8 weeks.

Once the truck loan has been paid off that frees up $380.00. Now you have $1,600 a month to put towards the 401k loan. Because you are paid bi-weekly you technically have two times a year where you get an extra paycheck which equals $5253 and this is extra to use towards debt. So if your remaining debt is 42k left on the 401k loan then it would take 23 months to pay off your loan. That puts you at 50, no debt and 22k in Roth, 220k in 401k with 18 years left to invest.

At this point you focus solely on wealth building. Go back to maxing out your Roth IRA's and now with all your debts paid off you have $1,700 every 4 weeks to invest in Index Funds, Mutual funds aggressively. I would spend the next 10 years at a 75/25 mix in favor of stocks. I calculated with your notes that your investing $15,780 a year in your 401k, $4,380 in company stock, $5,500 in IRA's and another $20,400 in the S&P 500.

So adding all those figures up that's $46,000 total invested yearly. With 220k in 401k's, 22k in IRA's and iinvesting in the S&P500 for 10 years with returns of 11% as Old Guy also uses and yearly investing 46k you'd have 1.5 million and no debt. That's not a bad situation to be in at the age of 60. Plus you could still invest at a 50/50 ratio for the rest of your life to watch your money grow at the rate of 7%.

I forgot once variable to this whole scenario. Buying a home. If you do decide to go this route, I would advise strongly only spending 20-25% of your net income on a home. If it were me I'd divert some of your investing money for a DP of 20% for a short time.

I think you can still make this happen with a bi-weekly budget, discipline and not overspending. Your doing great!

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Tue Jun 02, 2015 2:40 pm
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becky21
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Thanks littlerock for spending time to look into these numbers and coming up with a plan.
I will think what you have mentioned and then come up with a plan.

Only patience is required for next 3-4 years. My biggest expense was my dog that I gave away to pay off these loans faster.

I do have one question about the funds. If I put around $500-600 pm to an index fund (not in retirement account), which one would you all suggest? I know FUSEX needs $2500 minimum but I want to start with less.


Last edited by becky21 on Tue Jun 09, 2015 7:35 pm; edited 2 times in total
Post Tue Jun 02, 2015 7:08 pm
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oldguy
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I do have one question about the funds. If I put around $500-600 pm to an index fund (not in retirement account), which one would you all suggest? I know FUSEX needs $2500 minimum


The Vanguard 2060 Target fund has a $1000 minimum. Because it's so far in the future, it is mostly comprised of SP500 Index stocks. And then you could move it to Fidelity after it crosses $2500. I looked at a few Fidelity funds, the ones I saw were all $2500.
Post Tue Jun 02, 2015 8:44 pm
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littleroc02us
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Originally posted by becky21


I do have one question about the funds. If I put around $500-600 pm to an index fund (not in retirement account), which one would you all suggest? I know FUSEX needs $2500 minimum but I want to start with less.


I prefer VTSMX, Admiral Total Stock Index Fund. It is comprised of around 3000 stocks and is very aggressive. It's average around 16% in the past 6 years, historical 9% and has an expense fee below .05%. The VTSMX requires $3,000 to start. Once you reach $10,000 in that fund then your expense ratio goes down big time.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Jun 03, 2015 5:36 pm
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littleroc02us
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Originally posted by becky21
Thanks littlerock for spending time to look into these numbers and coming up with a plan.
I will read and think through what you have mentioned and then come up with a plan. The auto interest is so low that I donít want to use CDs to pay for it. However, I am using all the resources to pay 401k loan since that money is invested back into the retirement account. In a way, the 401 balance would go up much quicker.




IMO, I think it's a mistake to not pay off the auto loan when your not making anything on those CD's. Paying off debt and freeing up extra money to put towards your 401k loan is the most important thing you can do, because that 42k money isn't earning anything outside of the retirement account. Your losing money as we speak..

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Jun 03, 2015 5:38 pm
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becky21
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Those CDs are the EF. With the loans, one needs to have some cushion right!
Post Wed Jun 03, 2015 6:42 pm
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oldguy
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IMO, I think it's a mistake to not pay off the auto loan when your not making anything on those CD's.


Or, alternately you could move that $10k from the 2% CDs to an SP500 Fund - that would give you a chance to earn 11% on the $10k that you are paying only 2% fro (the car). The SP500 is immediately accessible to you in case of emergency.
Post Wed Jun 03, 2015 10:46 pm
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