Investing

Joeboo

Joeboo

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Ok, I hate to even admit this, but someone feel free to tell me how much of an idiot I am(or if I'm not, but I'm sure I am)

I'm in my mid 30s, and I have no retirement whatsoever. No 401K, nothing. I really have no excuse as I've held down a full time job non-stop since the age of 20. During my 20s I worked a job that did offer 401K contribution matching by my employer and I didn't take advantage of it. I'm now a self-employed 1099 contractor, so there's nothing for any employer to contribute, I'm totally on my own for my retirement(not considering my wife, who is in good shape in her 401k)

Basically I've justified it all of these years because I'm an only child and my parents are pretty well off, so I stand to eventually inherit several nice properties(probably valued around 500K combined right now, their house, a lake house, and a rental property) as well as inherit their assets(probably equal to that, minimum, who knows what the value would be down the road in 10-20-30 years) plus a few hundred thousand dollars worth of life insurance. Total value of around maybe 1 - 1.5 mil before estate taxes/IRS or whatever. This is a bad idea to plan on that future inheritance as part of my retirement plan, right? My parents had me when they were older, so even though I'm only 36 they're almost 70, so I doubt I'll ever be dealing with a scenario where I'm wanting to retire and they're both still around(unfortunately)

What should I be reading or researching for getting myself back on track, this late in the game(I know it's not super late, but it feels like it, I'm 36)
 
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Unidin

Molten Core Raider
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joeboo_sl said:
Ok, I hate to even admit this, but someone feel free to tell me how much of an idiot I am(or if I'm not, but I'm sure I am)

I'm in my mid 30s, and I have no retirement whatsoever. No 401K, nothing. I really have no excuse as I've held down a full time job non-stop since the age of 20. During my 20s I worked a job that did offer 401K contribution matching by my employer and I didn't take advantage of it. I'm now a self-employed 1099 contractor, so there's nothing for any employer to contribute, I'm totally on my own for my retirement(not considering my wife, who is in good shape in her 401k)

Basically I've justified it all of these years because I'm an only child and my parents are pretty well off, so I stand to eventually inherit several nice properties(probably valued around 500K combined right now, their house, a lake house, and a rental property) as well as inherit their assets(probably equal to that, minimum, who knows what the value would be down the road in 10-20-30 years) plus a few hundred thousand dollars worth of life insurance. Total value of around maybe 1 - 1.5 mil before estate taxes/IRS or whatever. This is a bad idea to plan on that future inheritance as part of my retirement plan, right? My parents had me when they were older, so even though I'm only 36 they're almost 70, so I doubt I'll ever be dealing with a scenario where I'm wanting to retire and they're both still around(unfortunately)

What should I be reading or researching for getting myself back on track, this late in the game(I know it's not super late, but it feels like it, I'm 36)
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The good news is that as a business owner, you can contribute to a SEP IRA. Basically your company contributes an amount and you match it. You can contribute up to 20% of your income between your business and yourself. It reduces the profitability of the business (if it pay separate taxes) and yourself so it will help on taxes as well. Depending on how much you make, you can catch up quite quickly.
 
N

nate_sl

shitlord
204
1
Joeboo - figure out a percentage of your income you can save. At your age, while it is certainly not too late, you need to be aggressively saving.

I would say a good target is 25% of your pretax income into an IRA. If you don't want to worry about picking funds just stick it in a Vanguard target retirement date fund. I think the max you can contribute yearly is the same as a 401k, which is $17.5k a year.

You can also contribute $5.5k to a Roth IRA. This is a post tax contribution but you won't be taxed on withdrawls assuming you wait until retirement.

Since I have no idea how much you make you'll have to decide how much you can afford to contribute. If you start contributing the $23k a year max you should be fine even without inheritance by the time you're 60-65 and want to retire.

Also do yourself a favor and read the Boglehead forums for a solid week or two. Just keep reading and it will start to make sense.
 
BrutulTM

BrutulTM

Good, bad, I'm the guy with the gun.
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I realize that this discussion was from a month ago, but Joboo, if your parents don't have nursing home insurance, tell them to get it. If you are counting on that inheritance and one or both of them wind up in a nursing home at some point they could eat through most or all of that stuff. $5-10K per month for each of them adds up really fucking fast and the older they are the more expensive it gets. Also start saving for yourself, you really can't just assume that their money will be there for you at some point, especially if they decide to take advantage of their savings and retire in style.
 
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Grif_sl

shitlord
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0
Long time lurker here. Followed FoH since 2007 (go Screenshots!)
If you have any interest in self directed investing, check out robinhood. They're purporting commission free trades and no account minimums. Kind of a big deal.
Only issues are that they're new, you're limited to US only stocks, and there's a waiting list of about 340 thousand people to get in. Still might be worth checking out though. Just need to enter an email address to sign up for the waiting list.
Robinhood - Zero-Commission Stock Brokerage
 
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Soriak_sl

shitlord
783
0
Grif_sl said:
Long time lurker here. Followed FoH since 2007 (go Screenshots!)
If you have any interest in self directed investing, check out robinhood. They're purporting commission free trades and no account minimums. Kind of a big deal.
Only issues are that they're new, you're limited to US only stocks, and there's a waiting list of about 340 thousand people to get in. Still might be worth checking out though. Just need to enter an email address to sign up for the waiting list.
Robinhood - Zero-Commission Stock Brokerage
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Someone mentioned them a couple pages back. The problem here is that they make their money with a higher spread -- i.e. you pay more for each stock you buy and get less on each sale. But that won't be shown to you, so it makes costs a lot less transparent, which is ultimately a bad thing.

That said, if you buy small amounts, you may still get ahead with this (I suppose they have no minimum transaction?). But when you sell a large amount of stocks, that could become costly.
 
Falstaff

Falstaff

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I'm about to leave my current job with close to $30k in a 403(b)... I have a pretty good rate of return in my portfolio (I posted it earlier in this thread) so now I'm wondering what I should do... just let ride until the market corrects then convert it to a Roth and throw it a Vanguard S&P fund or something else like that. Obviously it's going to be impossible to time things but I'm not even sure what all my options are.
 
Jysin

Jysin

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I'd love to know the pro / cons of converting a traditional 401k into a Roth. As my balance creeps ever higher, all I can see is how much of it will need to go to the tax man someday. That said, I do know the wonders of compound interest. So is it better to leave it be and compound heavier, or take the hit now and tax free later? If I were to convert, would it make a difference to do it at market peak or after a downward trend?

Kinda similar question to Eyashusa I guess.
 
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Unidin

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The question you should be asking is, "Do you think your tax rate will be higher in retirement than it is now?" If so, then convert it, if not, don't. For most people the answer is no, however, it doesn't hurt to have a ROTH and a traditional IRA/401k to help balance out your taxes in retirement. Some years if you're taking out more, you can go into the ROTH and keep your tax rate low. In years where you take less, you can go into the traditional IRA/401k and it will be taxed at a lower rate.
 
Falstaff

Falstaff

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I can't imagine my tax rate won't be higher in 35 years when I (hopefully) retire. Probably more like 40.
 
Soygen

Soygen

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You'd have to pay the taxes on that 30k if you convert to Roth, which is a big chunk at once. You could convert it in portions as well, if you wanted to.

I just rolled my old job's 401k into a traditional IRA and then started a Roth separately and have been maxing the Roth out for a few years now, along with my jobs 401k. That way I'll have a mix of pre and post tax income available.
 
Fedor

Fedor

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Roth tax treatment is basically for kids working summer jobs, people making minimum wage, and people making six figures or more; and the only reason those high income people are included is because they don't qualify for a deductible traditional IRA so the backdoor Roth is their only choice.

If you're in the middle like most people are then traditional tax deferral is a better choice.
 
Jysin

Jysin

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Well, I earn good 6 figures but I have the advantage of working overseas. So I get just over 100k tax exemption ($97k foreign exclusion + housing deduction). The issue is, I am probably coming back stateside next year. I have about 12 years of 401k savings while I have been overseas. I am just thinking I probably should have been going Roth 401k from the beginning. I am guessing it would be too late now to move it all over without the big hit.
 
Fedor

Fedor

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Choosing Roth basically comes down to whether or not you want to lock in your current tax rate. If you currently pay zero or little income tax due to low income or other factors then it's an easy decision to lock it in with a Roth account.
 
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Soriak_sl

shitlord
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How many funds do consistently well over 5 years? A study by S&P Dow Jones Indices suggests not many:Who Routinely Trounces the Stock Market? Try 2 Out of 2,862 Funds - The New York Times
The team selected the 25 percent of funds with the best performance over the 12 months through March 2010. Then the analysts asked how many of those funds - those in the top quarter for the original 12-month period - actually remained in the top quarter for the four succeeding 12-month periods through March 2014.

The answer was a vanishingly small number: Just 0.07 percent of the initial 2,862 funds managed to achieve top-quartile performance for those five successive years. If you do the math, that works out to just two funds. Put another way, 99.93 percent, or 2,860 of the 2,862 funds, failed the test.

... And the report said, "The data shows a likelihood for the best-performing funds to become the worst-performing funds and vice versa."
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The NY Times writer goes and follows up with the two funds, apparently implying he didn't get the point of the study. It's not that those two funds do something magically well, it's that the whole thing is a random process with mean reversal. It's pretty much like asking 10,000 people to flip coins, where "heads" is considered a win. In expectation, 2 people out of 10,000 will flip 12 heads in a row. But you don't go call them up and try to figure out what makes them expert coin flippers.
 
Cad

Cad

scientia potentia est
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Soriak_sl said:
How many funds do consistently well over 5 years? A study by S&P Dow Jones Indices suggests not many:Who Routinely Trounces the Stock Market? Try 2 Out of 2,862 Funds - The New York Times


The NY Times writer goes and follows up with the two funds, apparently implying he didn't get the point of the study. It's not that those two funds do something magically well, it's that the whole thing is a random process with mean reversal. It's pretty much like asking 10,000 people to flip coins, where "heads" is considered a win. In expectation, 2 people out of 10,000 will flip 12 heads in a row. But you don't go call them up and try to figure out what makes them expert coin flippers.
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VTSAX has been good indeed.
 
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