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Old 01-11-2008, 11:23 PM   #1
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Young guy

I recently found these forums and thought I would introduce myself. I am 23 and just beginning my adventure. I am not necessarily aiming for early retirement. I would love the financial independence though. That must be a truly awesome feeling to know that if you were fired from your job or simply decided you didn't want to work you could maintain your lifestyle with little hiccups.

Anyway, here is where I currently am.

401(k) - $5,300 (Vanguard Target retirement 2045)
Roth IRA - $9,100 (Vanguard Target retirement 2050)
Savings - $4,000


2007 was my first year with a real job so I learned a lot. I was only contributing 10% pretax and had the rest of my cash in a high yield savings account. I planned to use the money for a house. Then I read and after countless hours of analyzing I realized the money was better spent in an IRA. So at the beginning of this year I dumped $9,000 into my 2007/8 Roth IRA. I also got serious about my finances and realized that I could up my 401k contribution to the maximum allowed and still save around $1,000 a month for a home.

So my plan is to continue maxing out 401k and saving for a home. At the beginning of each year I will rob my home savings to fund my Roth IRA for that year. According to my calculations I should be able to purchase a home in May of 2009 with my savings (and $10,000 from my company for completing my masters degree). That's if it makes sense financially. My rent is pretty cheap and is supposedly locked in to increasing only 3% per year as long as I stay here. It may make more sense financially at the time to continue to rent and invest the money. I really don't know.

I am fortunate to make good money at work, but I have really been thinking of starting some kind of small business to bring in extra revenue. Something where I could invest less than $5,000. I think I have a good idea. I have a relative that owns a carpet cleaning business. There's little capital to buy. It could all be purchased for a few thousand dollars and she makes good money. Anyone have any ideas like this where you can invest a little capital and with "elbow grease" can actually make a little decent change? My brother wants a restaurant. I have little doubt that he could actually handle something like that. We both have experience and he is the type of person who would be a good manager with my financial backing, but that's a lot of money to come up with up front. So I may continue to plan and start something this summer when another one of my brothers will be available to help oversee things.

According to some retirement calculators with me investing $20,000 annually when I retire at 65 I should have somewhere around $10,000,000 depending upon interest rate. I suppose this number will actually be higher since my pay should increase along with maximum Roth and 401k contribution limits.

I also don't count on any pension, matching 401k contribution, or SS because:

1) I don't trust the company I work for to still be providing pensions in 40 years when I retire let alone in 60 years when I would be in the 70s and 80s and need it

2) My company matching contributions stink. They match like 4% in company stock and you aren't vested until after 3 years. I would rather not worry about it. If I get it, great. I guess it could actually be nice that they do company stock though. It means I can contribute more to my 401k and essentially "double up" my retirement savings.

3) I don't rely on SS because I would rather not rely on the government for my financial well being in retirement. From a lot of the things I have read, a slight reduction in benefits will allow SS to be funded for many more years so I could still catch a part of it. But, realistically, I will be 65 in 2050. We can't even imagine what the world will be like then. Lets just hope the stock market still averages about a 10% rate of return

Anyway, that's where I am at in my life. A single guy with no kids renting a house. I look forward to reading more on here.
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Old 01-12-2008, 01:14 AM   #2
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Quote:
Originally Posted by putty View Post
I recently found these forums and thought I would introduce myself. I am 23 and just beginning my adventure. I am not necessarily aiming for early retirement. I would love the financial independence though.
Welcome, and you are off to a great start.

I have no doubt you will achieve both financial independance and early retirement.

The biggest lesson I learned in getting to both was to simply DO IT.

PERSISTENCE! Keep saving/investing and making maximum use of all tax deferred opportunities. I made lots of mistakes along the way in investment choices, timing, etc, but I persisted and that overcame all mistakes.
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Old 01-12-2008, 09:08 AM   #3
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Congrats! You know at age 23 what so many people never learn in a lifetime! I'm wilth RetireeRobert - you will be fine! Good luck and stay the course.
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Old 01-12-2008, 09:18 AM   #4
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Putty,
Welcome to the board -- and it sounds like you're off to a great start. When I was about your age, my parents encouraged me to save 15% from every paycheck (pay yourself first!) I did this throughout my career. It was painless and I never missed it from my lifestyle then. Now I'm so very grateful to have enough set aside to provide for a comfortable retirement. Slow and steady often wins the race. Good luck with your plans!
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Old 01-12-2008, 10:21 AM   #5
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Putty, terrific start! Stick with your plan and you'll have it made.

Wow, is $10M the new $1M? When I was your age, $1M was the magic number

Your own business can be a great way to make money -- or to lose it. The ratio of winners to losers is not favorable, but the rewards can be high. If you pursue that path, be cautious, research, and learn.

Welcome to the forum!

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Old 01-12-2008, 10:34 AM   #6
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2) My company matching contributions stink. They match like 4% in company stock and you aren't vested until after 3 years.
If your company is public, then you may be able to immediately diversify the match into the other investments of your plan. Research the Pension Protection Act of 2006 for more details.
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Old 01-12-2008, 11:36 AM   #7
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Thanks for the welcome everyone.


Quote:
Originally Posted by Coach View Post
Wow, is $10M the new $1M? When I was your age, $1M was the magic number

Your own business can be a great way to make money -- or to lose it. The ratio of winners to losers is not favorable, but the rewards can be high. If you pursue that path, be cautious, research, and learn.

Welcome to the forum!

Coach
I don't know that 10M is the new 1M, but this is my thinking. At this point I am single and not married. I would like to get married and have a lot of kids at some point. Who knows who that will be with, and what their finances will look like, or when that will happen. I am not even sure exactly how much I will need. I understand the 4% rule and all of that, but I mean, there are too many variables between now and then. I figured that while I can afford to throw that much money away into retirement I might as well. I can always cut back in 10 or 20 years if I realize that I won't need nearly that much, but, due to the power of compounding, it would be difficult to catch up later on.

I will definitely heed the advice about the business.

Quote:
Originally Posted by gindie View Post
If your company is public, then you may be able to immediately diversify the match into the other investments of your plan. Research the Pension Protection Act of 2006 for more details.
I will definitely look into it. It was my understanding that I couldn't diversify or change anything until I was vested. Once I become vested, I am not sure exactly what I will do with it. Barring anything unforeseen, I will be able to fully fund the retirement accounts available to me with my own money (Roth IRA and 401k). I still have a few years to figure out how I can diversify it without paying taxes. It was my understanding that by leaving it in the company stock I wasn't paying taxes on the gains. If I cashed that out and reinvested I would have to. Unless that pension protections act allows you to diversify the company stock without having to pay taxes on the gains. I really don't know. I will have to look into it.

Thanks everyone!
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Old 01-12-2008, 11:57 AM   #8
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Putty, I don't have any words of wisdom for you, but it is so refreshing to "meet" such a well informed young person. You have the smarts to succeed!
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Old 01-12-2008, 12:36 PM   #9
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I'm impressed. When I was 23 retirement wasn't even on my radar. I just got lucky and went with an agency that had a good defined benefit retirement plan. They stopped offering those in 1978.
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Old 01-12-2008, 03:27 PM   #10
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It was my understanding that I couldn't diversify or change anything until I was vested. Once I become vested, I am not sure exactly what I will do with it. Barring anything unforeseen, I will be able to fully fund the retirement accounts available to me with my own money (Roth IRA and 401k). I still have a few years to figure out how I can diversify it without paying taxes. It was my understanding that by leaving it in the company stock I wasn't paying taxes on the gains. If I cashed that out and reinvested I would have to. Unless that pension protections act allows you to diversify the company stock without having to pay taxes on the gains. I really don't know. I will have to look into it.
Putty, you mentioned that the company match with stock is in your 401K? Then no transactions are taxable, no matter what the actual investment is. 401K's are tax-deferred accounts, no taxes due until you make withdrawals. So, if you were to sell the stock (assuming you could, given the Pension law I cited), there would be no taxes due. You would just indicate which of the other investment choices inside your plan you wish to move the money to.
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Old 01-12-2008, 04:18 PM   #11
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I am really confused now. My company says that they match my contributions with company stock "through an ESOP". Is this my 401k? I thought that was something completely different. If that is my 401k, then at some point in the year I will have to lower my contributions so I don't max out too early.

I guess things will become more clear once the contributions actually reach my 401k account.
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Old 01-12-2008, 04:39 PM   #12
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Sorry for the confusion.

It sounds like the ESOP is probably an entirely separate account from the 401K, fully funded by the company. You may or may not have any ability to sell the company stock and put it into alternate investments WITHIN THE ESOP. I wouldn't worry too much about that at the moment.

When you mentioned "match", I assumed (incorrectly) that the company was making an additional contribution directly to your 401K based on the amount that you have contrbuted. That was the basis for my previous responses.

On a side note, if the company was making its match directly to your 401K (which it doesn't sound like it is), then those amounts don't affect the maximum you may personally contribute.
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Old 01-12-2008, 04:53 PM   #13
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I didn't know that about employer matches (they didn't count towards your contribution limit). I was obviously confused about what my company was doing so I definitely wasn't clear in describing it.

Yeah, the 3.6% isn't that much anyways. Over time, it would add up though. I noticed in my benefits booklet that once I become vested I can freely move the matching contributions into "other investment options." I am not sure what those are, but I at least I wont have all my eggs in one basket so-to-speak.

Thanks gindie!
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Old 01-12-2008, 05:08 PM   #14
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Just for fun, if you left your current assets compound at 10% (the historic stock return average) for 35 years, you'd have over half a million - and that's without ever adding to it.

In your case, youth may not be wasted on the young.
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Old 01-12-2008, 07:56 PM   #15
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Man 9K in an IRA at the age of 23! That's pretty awesome if you ask me... just to let you know I have less than 30K in mine and I'm gonna be 35 this year (combo of the limit being only 2K/year for a loooong time and being forgetful/dumb/lazy to invest in some of the years).

With inflation, etc...the 401K limit will probably increase to around 20K/year I would imagine in the coming years, so that 10 million number might be on the lower end if your earnings increase and the avg market return is favorable to you.

You're off to a great start, just make sure to enjoy life a little tho!

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Old 01-12-2008, 09:37 PM   #16
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Thanks everyone. Compound interest is amazing. I still don't understand why they aren't making a lot of these compound interest/401k/IRA principles mandatory for every high school senior (at least they didn't where I grew up).

I think I was born into pretty fortunate circumstances. Fortunate because growing up my family was what you would consider poor. It really had a huge impact on my life seeing my parents do worse than paycheck to paycheck. Anonymous families donating Christmas gifts and boxes of food. It was pretty sad, but at the same time I learned the value of hard work and saving. So even living frugally is still pretty extravagant compared to what I grew up with. I wouldn't change a thing though. Hopefully someday I can give back scholarship money to someone who is in the situation I was in.
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Old 01-12-2008, 11:40 PM   #17
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Putty

You've got your head on straight! Congratulations. Too many young folks these days feel entitled to have the world served to them on a silver platter. Not you...you'll do great!

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Old 01-13-2008, 02:00 PM   #18
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The ESOP (at least in my firm) is pure company stock (hence its name). Actually it shares in the stock fund that are considered the "match" for each $$$ I contribute to my 401K, so I can get fractions of shares like you would in any mutual fund.

So if I am able to contribute $15.5K to my 401K, my firm would contribute up to $6500 (or maybe a little less I think) in company shares that I cannot touch for a long time. I do have the option after a few years to diversify from my ESOP and move all or a portion of the $$$ to my 401K mutual fund selections, so that I don't get caught in having an Enron like situation.
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Old 01-15-2008, 03:09 PM   #19
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As soon as you're allowed to sell the company shares and transfer the funds into some other investment, do so. I worked for Enron and did that (we could over 50 years of age, which, unfortunately, not many knew), and it saved me lots of losses.
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Old 01-15-2008, 09:41 PM   #20
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Thanks for that pfpelican. I will definitely do it. There's still some confusion between my HR person and me about when exactly I am vested and when I can diversify these funds. I should be able to see exactly when this date is as soon as my funds hit my Fidelity account.
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