Just getting started

[nickarmadillo]

Hi guys! This is my first post. Just looking for some simple, general advice on retirement planning.

I'm 27 and have finally begun saving for retirement, as my first couple years after business school weren't the greatest. I was working in a struggling family business and only took in $28,000 and $35,000 in 2011 and 2012, respectively.

I'm single (girlfriend of 8 years, but not married) with no children and my current gross income is $45,000 annually. I live in St. Louis, MO and plan to marry within the next several years and have one or two children by 32. She is an elementary school teacher and lives in the UK. She will likely be emigrating to the US soonish.

Despite my poor earnings, I've saved hard (calling me a penny-pincher would be an understatement - I practically live off canned food and do all of my shopping in thrift stores) over the years and aggressively paid off my debts.

My assets are as follows:
$57,739.88 cash/savings/checking/short-term bonds/money market
$9,279.15 profit sharing retirement fund
$20,044.65 Roth IRA
$3,860.00 automobile equity
$20,525.54 home equity

My only liability is a mortgage with a remaining principal of $115,149 and a monthly payment of $505.55.

Is this a good start? As a basic guideline, how much should I be saving and putting in retirement every year (I've heard 15%, but considering my low income, should I be saving more)? My work doesn't offer a 401k, so where should I be putting my money besides my annual Roth contribution? Is there potentially a better way to distribute my assets? Thanks. I'm new to all of this, so any advice would be greatly appreciated.

[heeyy_joe]

Welcome to you and great start, but you'll have to do something to increase your income before you have crumb crunchers to raise.

[nickarmadillo]

I hope to do so, but I, unfortunately, work for a company that doesn't have much capacity for pay increases. It's a family business, which was, until recently, run by my father. Just after I started working there, he had a massive stroke, our bookkeeper died, and our other salesman retired. I'm kinda trapped. If I leave, the company folds (I'm one of 4 employees and the only one left who knows anything about the business) and my father looses his insurance. The last year has pretty much decimated us. Not exactly the greatest situation.

[aaronc879]

I'd say you're doing well so far. Your income is fine, right around the per-person average in the US. I can't really say what % you should be saving. It's different for everyone based on many difficult variables. Some people would say your income is very small and you can't save anything. When I was your age I was making just under $45K and I saved around 40% combined between pre and post tax. The most I ever made was a few years later when I earned $49K and saved around 60% of it. Just don't buy what you don't need and you should have plenty of money left to save. If your future wife moves to the US and works as a teacher then the two of you should be well off. Best of luck.

[nickarmadillo]

If I might ask, how long ago was that?

Also, any ideas for where to put my cash. I think that I probably have too much in my savings account, which is getting almost no return. Mutual funds? Traditional IRA? Is there a general guideline for how one should break up their assets (% cash/%investments/etc)?

[aaronc879]

Quote:

Originally Posted by nickarmadillo If I might ask, how long ago was that? Also, any ideas for where to put my cash. I think that I probably have too much in my savings account, which is getting almost no return. Mutual funds? Traditional IRA? Is there a general guideline for how one should break up their assets (% cash/%investments/etc)?

I'm 33 now so not long ago. I lost my job though and have not gotten steady employment since(almost 2 years). I just got an offer for a 1 month assignment for $9/hr which I accepted because it's all I could get. That's why i'm glad I saved while I could.

What to do with your cash? Is the house you have now big enough for your future wife and kids or will you need to upsize? If you don't need the money for a house down payment you may need it for a wedding. You could put it in a taxable account with Vanguard. Don't put it all in equities though if you may need it soon. I'm not that good at advising where to put your money. I'm good at spending very little but not so good at deciding where to put it. Maybe someone else will come along with some advise.

[Ronstar]

Great job! Keep saving - you'll be surprised how well it will grow.

But your primary concern now is your business. Right the ship and you'll be ok.

[Midpack]

I'd say you're doing very well so far. I retired at 57 yo and wasn't as far along at 27 as you are, congrats. The one thing that all successful retirees have in common is living below your means (LBYM), you obviously have that concept mastered. It's always a balance between spending for now and saving for the future, but the more you save and invest wisely, the sooner you can reach financial independence (FI) - retiring is a separate decision. Increasing your income will help, but I'd be willing to bet you're going to do very well...

[nickarmadillo]

Thank you for the reassurance. I'm going to make my 2013 Roth contribution early this year and begin looking into options to invest some of my cash reserves. It's all so complex. I don't think that I'll be retiring early in the traditional sense, but I think that getting out at 65 WILL be early retirement by the times I'm due.

[hsv_climber]

Take a look at Traditional IRA instead of Roth IRA. At least before you are getting married. There is no reason to pay 25% in taxes.

[meekie]

Welcome to the board!

Sounds like you're in a tough situation work wise, but I think you've got a great start with your savings. I would definitely recommend keeping a good emergency fund in your cash/savings/checking/short-term bonds/money market accounts, but you probably could start to invest some of that money in other places.

There might be some options for you in having a small family business, you could look into putting a 401k in place, or contributing to a traditional IRA. I don't know much about that myself, but it would be good to look into.

As far as saving more than 15%, the more you save the better, but it really depends what your plans are. If retirement at 65, and you don't expect to spend a lot more in the future, then 15% now, and increase that when you have more money coming in, you might be fine. If you want to retire at 45, and do a lot of traveling, you'll need to do a lot more.

[nickarmadillo]

I'll definitely take a look at opening a traditional IRA account, but I thought that the benefit of a Roth was that you were taxed now instead of in a likely higher rate at retirement? Does the tax deferment benefit now typically outweigh the increased tax rate when your retire?

[hsv_climber]

Quote:

Originally Posted by nickarmadillo I'll definitely take a look at opening a traditional IRA account, but I thought that the benefit of a Roth was that you were taxed now instead of in a likely higher rate at retirement? Does the tax deferment benefit now typically outweigh the increased tax rate when your retire?

Yes, you are correct. But you are single and if you are not contributing to 401K @ work (or not contributing much) then you should be in 25% Federal + State tax bracket. So, in your situation it is better to get tax benefits now, since not many people (and definitely not with your current portfolio) are getting taxed 25% in retirement.

[MooreBonds]

Quote:

Originally Posted by nickarmadillo Is this a good start? As a basic guideline, how much should I be saving and putting in retirement every year (I've heard 15%, but considering my low income, should I be saving more)? My work doesn't offer a 401k, so where should I be putting my money besides my annual Roth contribution? Is there potentially a better way to distribute my assets? Thanks. I'm new to all of this, so any advice would be greatly appreciated.

Welcome from another fellow St. Louisan!

Regarding your father's health insurance - is he able to afford insurance on his own, perhaps through an exchange next year? It's a very difficult trick bag you find yourself in to have him on a company group health plan and endure low salaries just so he can afford insurance...

I know that running your own business plus an MBA can be quite a resume builder, if you were looking to greatly increase your salary with a position at another employer. Worst case scenario, what would your income be someplace else, and would you be able to subsidize your father's health insurance with some of your own money if you took another job somewhere else?

[Hamlet]

Correct me if I'm wrong, but wouldn't he be in the 15% bracket right now?

He's making 45k gross. Between the personal exemption of 3.9k and the standard deduction of 6.1k, his taxable income would only be 35k, which puts him in the 15% bracket.

I think he's actually better off in the Roth.

Quote:

Originally Posted by hsv_climber Yes, you are correct. But you are single and if you are not contributing to 401K @ work (or not contributing much) then you should be in 25% Federal + State tax bracket. So, in your situation it is better to get tax benefits now, since not many people (and definitely not with your current portfolio) are getting taxed 25% in retirement.

[Rothman]

Quote:

Originally Posted by Hamlet Correct me if I'm wrong, but wouldn't he be in the 15% bracket right now? He's making 45k gross. Between the personal exemption of 3.9k and the standard deduction of 6.1k, his taxable income would only be 35k, which puts him in the 15% bracket. I think he's actually better off in the Roth.

Definitely should be following a Roth strategy at lowest bracket, if he could afford to at a higher bracket as well so all compounded growth is tax free forever!

[nickarmadillo]

So, the consensus seems to be that the Roth is the best strategy right now? That's good to know, as I just made my 2013 contribution early. I'm looking at opening an online bank account with higher interest and some higher-yield ST bonds as well. Yeah, the whole situation at work is a drag. I don't make much at all (started at 20k and am now at 45k on my 3rd year), but it's hard to decide what to do. I can leave, but I then pass up the opportunity to run my own business if we can get things back up and running. My dad would also lose his insurance and I'd lose my sweet benefits package (company car, full medical, dental, vision, flexible hours, etc.). On the other hand, the industry is contracting, the plant is in bad shape, and all of our employees seem to be dying/retiring/disabled.

[hsv_climber]

Quote:

Originally Posted by Hamlet Correct me if I'm wrong, but wouldn't he be in the 15% bracket right now? He's making 45k gross. Between the personal exemption of 3.9k and the standard deduction of 6.1k, his taxable income would only be 35k, which puts him in the 15% bracket. I think he's actually better off in the Roth.

Sorry, I've missed the deduction part, just looked at $45K number.
Yes, with a taxable income of $35k, Roth is a better option.