Retirement Planning Thread

There's some pretty decent info in the Investment thread if you feel like slogging through it. General consensus is open a Vanguard/Fidelity account, auto fund a total market index fund, don't even look at it for the next 20 years.

Need more info.

How old are you now?
What age do you plan on retiring?
How much do you already have put away?
If the market dropped 40% next month what would you do?

I recommend reading the Stock Series by JLCollins. He's part of the FIRE community (financial independence/retire early), but that doesn't necessarily mean you have to retire early. The advice about what to invest in is good. It'll probably take a few hours to read through it all, but it's worthwhile in my opinion.

Stock Series

If you want it in book form, he wrote "The Simple Path to Wealth." But essentially, from what he's said, the information in the stock series is pretty much the same as the book.

Anyway, if you have the means, your investment order should be whatever your 401k match is, max out HSA (if available), IRA (5.5K), the remainder to max out your 401k (18.5k), and then a taxable account if you still have more savings to invest.

That all said, I wouldn't count on retiring at 67. Tons of people say they want to work until their mid 60's or 70's, but the amount of people whose health fails them before then is high. You also need to at least consider that you will have some Social Security (even if the Trust Fund runs out, it'll pay about 75% of what it currently does from annual collections).

Additional reading:
The Shockingly Simple Math Behind Early Retirement
The 4% Rule: The Easy Answer to “How Much Do I Need for Retirement?”

Echoing Gravel's link there. Easiest answer is to use the 4% rule or commonly referred to as "SWR" (safe withdrawal rate). This factors in for inflation and is based off the entire history of the market. The only couple instances where it would fail is if you got to your magic number, then decided to retire and a massive crash ala 1929 / 2000 / or 2008 happened immediately after. But even then, if you were to temporarily scale back your withdrawal rate.. you'd be fine.

Mr Money Moustache is a must-read for any financially savvy person looking to plan a retirement.

Here's a great Reddit forum that loosely follows this financial freedom plan:

financial independence / early retirement • r/financialindependence

I personally think MMM and that Reddit group should be mandatory reading for any adult.
Live within your means, save smartly, retire early. Who the hell could argue with that?

If you want to retire in 25 years, a target date fund would be the easiest route to go. It's designed to adjust it's risk tolerance as you age. The advice to start by maxing out your 401k match at work is a good one. Most plans over some kind of target date fund. You'd be looking at a 2040 or 2045 target date fund. Outside of your 401k, you can do an IRA with the same type of investing. The trick is to set it and forget it. Don't try to buy a bunch of funds and time the market. Just continue to add it to. If the market drops, then you get everything on sale.

Open an account at a brokerage and start adding for the IRA. Here's an example of Fidelity's offering.
How Fidelity Manages Fidelity Freedom Funds - Fidelity

Vanguard and Fidelity are currently the two lowest on fees by quite a large margin. Assuming you want to keep everything with one company, I don't see any issue with it.

The reason I prefer Vanguard over Fidelity is that Vanguard is owned by the shareholders (*Edit for clarification, it's owned by the funds themselves, which are owned by the shareholders; which is a unique arrangement in the financial world). Which basically means Vanguard will always be low fee. Fidelity is super low fee right now, but who knows if they decide to raise them in the future?

Unlikely that government would do anything extra to delay receipt of taxes. People that tend to cap out IRA/401k contributions are higher earnings anyways and would invest the funds whether or not the cap is higher. They'd just do it in a taxable account.

With the last tax bill, one of the ideas being floated was to make all or more of the IRA contribution a Roth type.

Which seems incredibly short sighted to me. But I guess that's part of the problem with politicians is they love to deal with the problems 5 feet in front of them and ignore the implications 10 years down the line.

Roth's are a pretty shitty deal for the government.

The answer is it depends.

My general advice is it only makes sense to do a Roth if you're in an incredibly low tax bracket right now.

The biggest reason for this is that a traditional IRA lowers your entire taxable burden; every single dollar you earn is taxed at a lower rate. A Roth is taxed at your highest taxable rate. If you're at a low enough tax bracket, this doesn't matter that much, as you're already paying minimal taxes.

There are other nuances, but for the most part, I'm not a fan of Roth's. That said, we've got a substantial amount in them because when I was in the military and deployed, we essentially got to contribute to a Roth completely tax free. We're also planning on doing a Roth conversion ladder in a few years, although I wouldn't necessarily call that investing in a Roth.

The second biggest advantage of a traditional (after lowering your marginal tax rate) is that you can invest the difference in taxes. Let's say it would've cost you $6500 in after-tax income to max the $5500 Roth IRA this year; instead you can invest $5500 in a traditional, and the additional $1000 in anything else (401k, taxable account, etc). So if you're someone looking to maximize your savings, the traditional is a clear winner.

Gravel said:

Which seems incredibly short sighted to me. But I guess that's part of the problem with politicians is they love to deal with the problems 5 feet in front of them and ignore the implications 10 years down the line.

Roth's are a pretty shitty deal for the government.

Click to expand...

Yup, but it makes the numbers look good now and that's all politicians care about.

moonarchia said:

So would you recommend a Roth IRA over a regular one, then? I was doing some looking into that tonight, seems to get taxed a lot less no matter which way you slice it.

Click to expand...

If you're in a higher tax bracket right now, then a traditional make sense. If you're in a lower tax bracket than when you retire, the ROTH makes more sense. You likely should have some in both buckets so you can control your taxable income in retirement. Since your 401k is most likely pretax money, a ROTH for your IRA is a good idea.

That being said, make sure you're under the income limits for being able to deduct your Traditional IRA contribution. The phase out starts at $101k/year for married couples and phases out completely at 121k/yr for 2018.

moonarchia said:

Thanks guys. My work matches up to 6% (which is what I am at currently, from the day I became a permanent employee), and in another 2 years I will get an added 3% that they just toss on retroactively, so it basically becomes 15% total. I will do some digging into what our 401k is all about, and look into IRA options. Our 401k is with Fidelity, would it be advisable to get an IRA from them, or from a different source?

Click to expand...

I just want to make sure you are reading your company plan correctly. Do they match 100% up to 6%? Because it is common (my company do this too) for them to partial match up to 6%. Ie: You contribute 6%, but the company only matches 50% of up to 6% income. So, your 6% + their match is technically only 3% = 9% contribution... not 12%. Some do match 100%, but it is quite rare. My company is a fortune 50 company and those cheap fuckers don't 100% match.

Better to grasp this now while you are planning early.