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16 years old, need advice on retirement investments.
Old 11-05-2005, 11:18 AM   #1
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16 years old, need advice on retirement investments.

Hello,

I'm 16 years old and started thinking about early retirement(35 to 40). I'm a junior in high-school, so I have one more of school, and don't plan on going to college. I already have a job with my father(siding and windows contractor) making 15$ an hour. When I graduate and work full time with him, I will recieve atleast a dollar raise every six months. Currently any money I make I'm saving 50% in a simple savings account(for now, just so I have somewhere to put it.) When I turn 18, I will start saving 70% towards retirement. This sounds a little unrealistic to some people, but since I'll be living at home for very cheap and not be real spendy, it is realistic in my book. I planned out a realistic year by year pay chart, and I just calculated me putting all the money I save in one year, into a 1-year CD, and when it matures taking that and combining it with the money I saved in the next year and doing the same thing year after year. I used the current percentage(4.5% about) and calculated I will hit a million around 40 years old. At 4.5% return annualy, thats 45,000 and I will be saving 50,000 a year then, so every year I work after 40, I will save about an extra 100,000. I'd like to move to Central America somewhere where I wake up roll over and see clear blue water(I guess thats a lot of peoples dream, but whatever.) Is there any better ways to invest thats virtually no risk other than CD's? Thanks a bunch.
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 11:37 AM   #2
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Re: 16 years old, need advice on retirement investments.

Hi if.,

I'm 12 years old, and I plan to retire right after graduation from high school .

--Richie
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 11:50 AM   #3
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Re: 16 years old, need advice on retirement investments.

The message posted by the OP is inconsistent with a 16 year old working in construction.* I think someone is playing a head game, however, on the slim posibility that it was written on behalf of a 16 year old with unrealistic expectations:

Life is not without risk. *Only by taking thoughtful risks will you achieve much in life, just ask your Dad about the construction business.

If you want to do well in the construction business take classes at your local community college - a class about running small businesses, construction technology. *Know your trade well.

If you are old enough to open an IRA do that and invest in a low cost no-load no 12(b)1 fee stock mutual fund when you accumulate about $2,000. *While you are busy saving the $2,000 learn about investing, we can put together a list of books you can borrow from you local library. *A more expensive option is to buy stock in a good, solid company (which it is why you should open an account at a low-cost investment firm like Vanguard or Fidelity) - like GE or MMM and ignore the day-to-day swings in the stock market.

I doubt that you will want to live at home until you retire. *Anticipate that you will want a place of your own in 2-4 years. *When that time comes furnish it with value in mind. *Value is quality at a low price.. use Freecycle and Craigslist. *

Your income looks good to you because you have few living expenses.* I assure you that the income you predicted won't be sufficient to support you (let alone a family) when you are on your own.

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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 12:03 PM   #4
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Re: 16 years old, need advice on retirement investments.

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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 12:51 PM   #5
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Re: 16 years old, need advice on retirement investments.

Don't laugh, this was about the time I started thinking about early retirement.* All I knew is that I wanted to live off the interest on my investments as soon as I could save enough to do so.* My original plan was to retire no later than age 50, even though I had no solid plan how how to achieve this.* Interest rates were high back then so all I thought of were CD investments and later when I had enough saved, real estate investments.* I knew nothing about inflation, mutual funds, diversification, SWR, and all the other important factors involved in reducing ER risk.*

There were no computers and no Lotus or Excel spreadsheets, there was no Internet, and there were no books on ER.* Although there were plenty of books on wealth accumulation that I started reading at the library after school.* In particular, I remember reading a book by Robert Allen called "Creating Wealth."

Over 20 years later and I'm still learning.
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 01:03 PM   #6
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Re: 16 years old, need advice on retirement investments.

Hey thanks for the advice, in my opinion it isn't unrealistic..I have a LOT of freedom at home, so no, I'm not going to want my own place. I was actually conservative with my figures while calculating. I have good saving ethics already, so I won't be blowing the money on unnecesarry stuff. Why is it unrealistic?
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 01:19 PM   #7
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Re: 16 years old, need advice on retirement investments.

I gotta draw the line at some point. Your post is ridiculous. Why don't you think about saving money and developing good money mgt habits rather than retiring early? Come back after you 1) move out of your parent's place 2) work a full-time job for 10 years 3) accept a bit more responsibilty and grow as a person and 4) make an effort to read and learn a bit more on how to invest your money.
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 02:47 PM   #8
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Re: 16 years old, need advice on retirement investments.

Quote:
Originally Posted by If.
so no, I'm not going to want my own place.
But your parents might! :
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 03:00 PM   #9
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Re: 16 years old, need advice on retirement investments.

Quote:
Originally Posted by If.
Is there any better ways to invest thats virtually no risk other than CD's?
Congrats on getting into the savings habit. While you may find some of your plans changing down the road, this is an excellent habit to start at your age.

Unfortunately, CD's are not risk-free. While the dollar amount is guaranteed to grow, the buying-power of those dollars is constantly eroded by inflation. By the time you get your million bucks, it might only have the purchasing power of $400,000 in today's dollars.

When you have a few thou, open an account with Vanguard and put half the money in their Total Stock Market fund, and the other half in their Total International Stock Market fund. Don't sell a single share for the next 25 years, and you should have a nice chunk that has grown faster than inflation. Ignore the daily and even yearly fluctuations in value until you get closer to retirement, and then you may want to reduce volatility with CDs and such.
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 03:57 PM   #10
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Re: 16 years old, need advice on retirement investments.

"I gotta draw the line at some point. Your post is ridiculous. Why don't you think about saving money and developing good money mgt habits rather than retiring early? Come back after you 1) move out of your parent's place 2) work a full-time job for 10 years 3) accept a bit more responsibilty and grow as a person and 4) make an effort to read and learn a bit more on how to invest your money. "

Why is my post ridiculous? Why do I have to move out if my parents don't mind me, and I don't mind living at home..its not like I'm going to be getting a totally free ride, I help out a lot already and my parents respect my decision on wanting to retire early to get out of the rat race. I don't want to work a huge portion of my life. For the people actually helping me, thanks a bunch, but if your just going to come on here and post about how my post is ridiculous, save your time and don't even post. Thanks.
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 04:55 PM   #11
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Re: 16 years old, need advice on retirement investments.

Well, if you are young and starting to save for retirement, then you probably can't go wrong by opening a so-called Roth IRA.* You probably should not invest in CDs because they have such a low return.* You should have a more long term investment horizon and should be in mutual funds.* Perhaps a low-expense ratio, no load, equity index fund.

Take a look at http://www.investing.rutgers.edu/

It reads like you dad is setting you up with your own siding and windows business.* *In the future, maybe you will want to run several crews while you build the business into a huge local establishment.* *Keep us posted on your progress.* *Good luck!
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 05:01 PM   #12
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Re: 16 years old, need advice on retirement investments.

With your construction skills, have you thought about buying some houses that you could fix up. Some folks do that and live in them while they fix them up.

I would get out of the cd game for long-term investing. I would dollar cost average into the total stock market index fund and/or do some real estate investing with your skills.
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 05:50 PM   #13
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Re: 16 years old, need advice on retirement investments.

Thanks for the replys, yea my dad just worked by himself for about 30 years now in his own business(no help at all cept for me starting this year) and its a pretty lucrative thing. He makes around 100,000 a year now, and doesnt have a dime saved for retirement, and I definitly don't want to end up like that. He was thinking about in a few years hiring a few different guys for different jobs and just being the supervisor and stuff, and still raking in a lot of cash. He also thought about buying a house fixing it up and selling it, but he thinks it would be a little risky, like if the inspector or whatever missed something big, and then when he goes to sell it they find something big wrong and stuff gets messed up. I live in New Jersey so a lot of homes are pretty pricey around here to buy, and he has bad saving ethics, when he makes more he ends up spending more, and by more I mean all of it. So maybe I'm learning from his mistakes? I don't know, but I know for sure I'd like to retire earlier than the usual 62 or whatever the "normal" retirement age is. Thanks again for the replys.
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 07:05 PM   #14
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Re: 16 years old, need advice on retirement investments.

That's it, I'm officially depressed. I'm talking to some one about retirement who's half my age. :P
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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 07:20 PM   #15
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Re: 16 years old, need advice on retirement investments.

Roth IRA VANGUARD INDEX FUNDS.

That is what I would reccommend.

Put in the max allowed. As long as you have EARNED income (from a job) you can contribute at any age. You can open the account online, just go to the vanguard website.

They have low costs, unlike some investments. And it's hard to go wrong with an index fund since it is basically a combination of many stocks that comprise the range of the whole market.

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Re: 16 years old, need advice on retirement investments.
Old 11-05-2005, 07:42 PM   #16
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Re: 16 years old, need advice on retirement investments.

Welcome If. I'm a 28 year old who's currently living in his parents' abode (although, they're gone 9 months out of the year, so it's not too bad ). Congradulations on thinking so early about ER. While I didn't start thinking about ER until Sept 2004, I always had an extreme savings mentality and had a very, very, very low maintenance requirement, so I have a fairly good jump start so far.

Most places won't let you open up a retirement account until you're 18, so when you turn 18 have some cash saved up to open up a ROTH IRA. Also, talk to your father about starting a SEP (Simplified Employee Pension) IRA. It's essentially an IRA that your employer funds on your behalf. Each year, your employer decides how much of your income to deposit into your plan tax-free. It's very much like a 401 (k), except you don't contribute pre-tax dollars to it - your employer does. The only catch is that your employer must put the same percentage of salary into each employee's plan. So, if your father hires more people, he would likely have to create accounts for each of them and deposite an equal percentage into their accounts.

However, if he were to start now, he could set up SEP IRA accounts for you and him. He can deposit up to 20% of your/his income into the account (up to $40,000), and can change the percent each year, depending on how well the company does. Any discount broker or mutual fund family can accept an SEP IRA account.

Keep up the good work with the CDs...once you have about $10,000 saved up (and turn 18 so you can invest to your hearts content) come back to the forum and the collective intelligence can offer some more advice.

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Re: 16 years old, need advice on retirement investments.
Old 11-06-2005, 02:03 AM   #17
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Re: 16 years old, need advice on retirement investments.

Hard to be sure if posts are real... a 24 year old with over 5 million $, a 16 year old planning a retirement in Central America.

Anyway, I'll assume you're for real, If.

Like Wab said above, your calculations are ignoring inflation.
But, don't panic, you still might get a 4.5% return even after inflation, on average over the next few decades, if you invest like he says to.
Might be a good idea to read up on investing, because it's too easy to buy high and sell low, instead of the other way around. I like William Bernstein's Four Pillars of Investing.

I remember telling my father about my early semi-retirement scheme when I was in high school, and he told me it wouldn't work.
Well, I didn't do the plan I told him about. But it worked out pretty well for me. I'm not working!
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Re: 16 years old, need advice on retirement investments.
Old 11-06-2005, 11:05 AM   #18
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Re: 16 years old, need advice on retirement investments.

Quote:
Originally Posted by If.
Why do I have to move out if my parents don't mind me, and I don't mind living at home..its not like I'm going to be getting a totally free ride, I help out a lot already and my parents respect my decision on wanting to retire early to get out of the rat race.
Dude, save this conversation for your significant other. You will not want to put an alpha spouse in the same house as your alpha-spouse parents.

OTOH when your dates find out that you're living at home with Mom & Dad, that situation may just resolve itself without any action on your part...
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Re: 16 years old, need advice on retirement investments.
Old 11-06-2005, 12:42 PM   #19
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Re: 16 years old, need advice on retirement investments.

Quote:
Originally Posted by Nords
OTOH when your dates find out that you're living at home with Mom & Dad, that situation may just resolve itself without any action on your part...
Again, assuming If. is for real....

Nords, that thought is exactly what I have used to self-select my potential significant others. Granted, my parents being out of town for 9 months out of the year is a little bit different than them being around full-time (and if they were around full-time, I'd have my own place)...but If., I'd consider it a great way to find out what that potential significant other is really made of. Sure, you don't advertise it in the first 5 minutes (you have to let them know about why you're a great person before you drop a bomb like living at home)...but I've found it a great way to meet someone that has similar financial views/goals. Sure, it's not the most romantic thing to discuss, but it sure beats the hell out of almost marrying a gold-digging, nightmarish female dog.

As for other advice If., I'd say you're on a great track. I'm 28 and living at my parents place for the time being, while I try and maximize my savings before I head out on my own at around 30.

Here's some other suggestions:

1) Since it sounds like it's just you and your father in business, have the company pay for as many expenses as they can. For instance, I work for a family-owned small business. I have an agreement where the company owns the car I drive, pays for the gas, insurance, and upkeep. Not only do you avoid paying for these expenses with after-tax dollars, but your father also saves money by not paying matching SS/Medicare taxes.

Let's say you spend $2,988/year on car expenses

Current situation:
$ 5,000 Cash in the company's checking account
$ 1,250 Income Taxes (illustrative example)
381 Medicare/SS taxes deducted from your check
$ 2,988 After-tax income to spend on vehicle/insurance/gas
Your father also pays $381 Matching Med/SS taxes.

Total outlay by your father: $5,381.
Total investable income recieved by you: $0 (it all went for car expenses)

If your father's company pays the $2,988 in car expenses and deducts it as a company expense:
$ 5,000 Same cash in the company's checking account
$ 2,988 Vehicle Expense outlays by the company
$ 2,022 Leftover cash that your father can pay you in additional wages.

$2,022 Additional gross wages to you
505 Income Taxes
154 Medicare/SS taxes deducted from your check
$1,363 Additional Free investable income from that same original $5,000 in gross income

$ 0 Prior investable income to you from the $5,000 in wages
$1,363 New investable income to you if the company pays car expense

$5,381 Original total money paid by your father for $5,000 in your wages
$5,164 New total money paid by your father's company for $2,988 in vehicle expense and additional $2,022 in wages to you.
$ 217 Illustrative savings to your father's company


That's just one example of how your father can deduct business-related expenses and help increase your disposalbe income. (NOTE: There are many tax-related issues involving this, such as what degree the vehicle is used for personal use, etc. Be sure to consult a tax professional if your father is not up-to-date with all of the tax laws.) When you start looking at having the business also pay for your cell phone, health insurance, possible uniforms, tools, etc., it can snowball into a huge financial benefit by having the company pay for these work-related expenses instead of you.

2) It would be a great benefit to both you and your father to look at starting a retirement plan. Even if you start a ROTH IRA, you should still maximize your savings with an additional company-sponsored retirement plan. If it's just you and him at the company, you could easily set up a SEP (Simplified Employee Pension) IRA. While it has "pension" in the title, it's actually just like a 401 (k), except with a SEP IRA, the company puts additional pre-tax money into the account without subtracting from the employee's paycheck, rather than the individual having it deducted from their gross wages. Each year, your father determines what percent of yours and his gross wages that he wants to contribute to the retirement plan (from 0% to 20% of the first $200,000 in wages, I believe). He then writes a check to wherever you have your SEP IRA account at, and you invest it as you see fit.

There are some benefits on a company having a 401 (k) vs ROTH 401 (k) vs SEP IRA. It depends on various factors, ranging from your fathers/your compensation, if he brings additional employees into the company (you have to give the same SEP percentage to ALL employees once they have been there so many years), etc..

Good luck.
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Re: 16 years old, need advice on retirement investments.
Old 11-07-2005, 06:46 AM   #20
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Re: 16 years old, need advice on retirement investments.

If,

Get a life. You're 16. I seriously hope this is a joke.
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