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Should I be contributing more to my retirement account?
Old 03-17-2009, 08:59 AM   #1
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Should I be contributing more to my retirement account?

My wife and I are both 28 and have ~$30k combined in our retirement accounts. We got a bit of a late start building our portfolio because we didn't have extra money when we started our careers. However, now we're in a position where we can contribute much more.

In general (I know it varies A LOT) but what's a good amount to have in your account by the time your reach 30...35...40? I feel like we should start contributing more to catch up for the time we missed at the beginning of our careers.

We're currently contributing 13% towards retirement. However, 3% of this is towards the State pension and I'm not sure I'll stay as a state employee long enough to reap the benefits. Should we be contributing more than 13%?
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Old 03-17-2009, 09:03 AM   #2
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First of all, welcome!

Before one could give you an informed answer, we'd need to know about any other savings needs you may have -- such as an emergency fund, down payment on a home purchase, existing high-interest debt, that sort of thing. I'd make sure you have these in place (and higher-interest debt all paid off) before maxing out retirement. But if those are already in place and are sufficient for your needs and your future plans, yeah, I'd probably fund retirement as aggressively as I could.

As far as how much to have in your account, I'll just say I had a lot more in mine at 41 than I do now at 43...
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Old 03-17-2009, 09:20 AM   #3
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Hi bank5, and welcome to the forum!

Your question is a difficult one for us to answer, because the answer really is different for each of us. It depends on a lot of things, like when you hope to retire and the kind of lifestyle you would like in retirement.

There's a tool here that can help. FIRECalc. You'll see a link at the bottom of each page. If you're willing to spend a little time with FIRECalc you should be able to get a sense for how you're doing.

FIRECalc will also help you think about the many various factors you need to consider to develop a good retirement plan.

I think the good news is that you're thinking about all this at your age. A lot of folks, including many of us, didn't really get started until later in life.

I'm glad you joined us. I hope you find useful information here.

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Old 03-17-2009, 09:48 AM   #4
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Originally Posted by ziggy29 View Post
First of all, welcome!

Before one could give you an informed answer, we'd need to know about any other savings needs you may have -- such as an emergency fund, down payment on a home purchase, existing high-interest debt, that sort of thing. I'd make sure you have these in place (and higher-interest debt all paid off) before maxing out retirement. But if those are already in place and are sufficient for your needs and your future plans, yeah, I'd probably fund retirement as aggressively as I could. As far as how much to have in your account, I'll just say I had a lot more in mine at 41 than I do now at 43...
Thanks for the info. I just found this forum last night and it seems to be loaded with great information. I should have been more specific in my original post but am in very good financial shape -- 8 month emergency fund in a money market, only debt is mortgage - 5.25% and student loans 3-5%. I'm trying to decide now do I put the extra savings towards a second house (and rent out my current house) or get more aggressive with my retirement plan. The home rental market has gone down drastically where I live so I'll probably go with the latter for the next couple of years.
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Old 03-17-2009, 09:52 AM   #5
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Originally Posted by Coach View Post
Hi bank5, and welcome to the forum!

Your question is a difficult one for us to answer, because the answer really is different for each of us. It depends on a lot of things, like when you hope to retire and the kind of lifestyle you would like in retirement.

There's a tool here that can help. FIRECalc. You'll see a link at the bottom of each page. If you're willing to spend a little time with FIRECalc you should be able to get a sense for how you're doing.

FIRECalc will also help you think about the many various factors you need to consider to develop a good retirement plan.

I think the good news is that you're thinking about all this at your age. A lot of folks, including many of us, didn't really get started until later in life.

I'm glad you joined us. I hope you find useful information here.

Coach
Thanks Coach. I saw a lot of posts about FIRE last night but wasn't sure what it was. I'm excited to give FIRECalc a shot.
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Old 03-17-2009, 10:01 AM   #6
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At the risk of being overly simplistic, you can withdraw 4% of your nest egg at retirement, and adjust it for inflation thereafter. This 4% withdrawal needs to cover all taxes, health insurance and other living expenses.

So, once you determine your minimum standard of living in today's dollars, you can use a program to project out inflation and earnings to give you a ballpark idea of how much you need to contribute yearly to meet that goal.

Of course nothing in life is predictable, but this at least gives you a rough way to set up your plan.
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Old 03-17-2009, 10:48 AM   #7
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Before buying a rental house in this economic climate, it might be a good idea to put money into your retirement accounts and/or to pay down that student loan debt. Even though it is low in interest, I guess student loan debt can be kind of an albatross sometimes.
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Old 03-17-2009, 12:20 PM   #8
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We are the same age as you and we also have similar interest rates on the mortgage and some massive student loans at sub-3% rates. So we don't do anything to pay down our debt beyond the normal monthly payments.

We contribute significantly more than 13% to retirement (around 50% of gross income). But that may not be a realistic goal for everyone.

You can run the numbers on how long it would take to accumulate a nest egg sufficient to support yourself while only saving 13% and I think it would indicate that you would be closer to a normal retirement age rather than an early retirement age. Which may be ok depending on your goals.

Do you save any outside the workplace retirement plans, such as in an IRA or a regular taxable investment account?

Also regarding investing more or buying a second house to allow you to rent one out, that comes with a lot of work and responsibilities, but it could potentially be more profitable than investing in the market. Although now is a much better time to invest in the market than a year or two ago.
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Old 03-17-2009, 12:28 PM   #9
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I always take a global view of my assets when thinking about retirement.

I don't focus on how much money is in my 401K or in my IRA because that's only one pool of retirement money. I also have taxable investments and real estate investments that I will be able to tap in retirement.

So in your case, that second home can and should be included in your retirement stash. You can use the rents to pay the bills when you retire or you can sell that home and invest the proceeds in income producing assets. You need to look beyond your 401k balance when planning for retirement. Besides, depending on your current tax situation, there might be better ways to save for retirement than putting all your money in a 401K.
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Old 03-17-2009, 01:03 PM   #10
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We contribute significantly more than 13% to retirement (around 50% of gross income). But that may not be a realistic goal for everyone.
Wow, 50% that's awesome.

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Do you save any outside the workplace retirement plans, such as in an IRA or a regular taxable investment account?
Yeah, I opened up a Roth IRA 3 years ago and have been maxing it out. I'm going to do the same for my wife before April 15. It's in Vanguard's Target 2040 fund -- figuring I'll just leave it in autopilot for now.
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Old 03-17-2009, 01:08 PM   #11
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Wow, 50% that's awesome.
Yeah, I opened up a Roth IRA 3 years ago and have been maxing it out. I'm going to do the same for my wife before April 15. It's in Vanguard's Target 2040 fund -- figuring I'll just leave it in autopilot for now.
Yeah we save a lot but also hope to very early ER. But we do okay on the income side so putting 1/2 of gross income away doesn't hurt us too much.

If you are also maxing out IRA's for the two of you on top of the 13% in retirement accounts, then you are probably doing a good job as measured by the typical poster here who wants to ER. Stick with it and bank a good portion of future raises and you'll be set for an ER in your 50's.
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Old 03-17-2009, 01:09 PM   #12
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I always take a global view of my assets when thinking about retirement.

I don't focus on how much money is in my 401K or in my IRA because that's only one pool of retirement money. I also have taxable investments and real estate investments that I will be able to tap in retirement.

So in your case, that second home can and should be included in your retirement stash. You can use the rents to pay the bills when you retire or you can sell that home and invest the proceeds in income producing assets. You need to look beyond your 401k balance when planning for retirement. Besides, depending on your current tax situation, there might be better ways to save for retirement than putting all your money in a 401K.
I've been pretty fortunate with the home situation here in NC. My wife and I made a great decision on the house we bought 3 years ago and it's appreciated about 18% since then. I'm actually getting it appraised in a half hour.

I'm going to hold off on renting my house for now since the rental market has plummeted. However in a year or two if I can rent it for hundreds more than my mortgage and expenses, that's an opportunity that I'll have trouble passing up.
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Old 03-17-2009, 01:10 PM   #13
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There are a number of rule-of-thumb guides to tell you if you are on track for retirement.

I would start at http://www.choosetosave.org/ballpark/ and work through either the calculator or their spreadsheet.

another (perhaps) useful guide to where you should be in savings and debt relative to age. If you want to retire early (by say 10 years) add those years to your age and recompute.

A twist on this topic was discussed quite a bit here:

http://early-retirement.org/forums/i...4168#msg104168


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457 or 403b
Old 03-17-2009, 01:28 PM   #14
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457 or 403b

Thanks everyone for the replies. After reading all of them and doing a bit of research I've decided to start contributing more to my employer's supplemental retirement plan. I have 2 options: Fidelity 403b or Prudential 457

I think I'll go with Fidelity because they have lower fees, more options and I already have an account with them. I set up the account when I rolled over my old 401k and my balance is pretty low so I didn't spend a lot of time picking out the stocks. Right now I have:

25% FSTMX
25% FSEMX
25% FDSCX
25% FSIIX

I'm going to take a closer look into it now that I plan on contributing more. Would it make sense to change anything?
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Old 03-17-2009, 01:59 PM   #15
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25% FSTMX
25% FSEMX
25% FDSCX
25% FSIIX
Make sure you don't have extra fees in the 403b. Otherwise, the three spartan funds look good. The small cap fund has a high expense ratio and a lot of turnover, so expenses will consume a lot of your return.

If it were me, I'd put the fidelity money in the three spartan funds (maybe 1/3 in each) then use the Roth IRA's to get small cap exposure. Figure out an overall asset allocation and then use the different funds available across all your accounts (fidelity and vanguard) to get the lowest expense portfolio. I do this with my own portfolio - fstmx and fsemx are really the only two good funds available in my fidelity 401k, so I go to other accounts for international, small cap, value, and REIT exposure.
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Old 03-17-2009, 02:01 PM   #16
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Dave Barry had a joke about an insurance salesman's questionnaire. It looks like this:

1. How much life insurance do you have? ____________________
2. That's not enough, let's set up an appointment to go over your needs.

That's how I'd structure a "How much should I save" questionnaire.
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Old 03-17-2009, 03:04 PM   #17
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I wouldn't question the 3% toward pension. That money should be refundable if you opt out of the pension and with a modest interest payment, maybe 1.5 percent? It isn't lost money.
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Old 03-17-2009, 03:14 PM   #18
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I wouldn't question the 3% toward pension. That money should be refundable if you opt out of the pension and with a modest interest payment, maybe 1.5 percent? It isn't lost money.
Good point, I just read that if I did opt out I would be able to rollover my contribution into an IRA. I didn't realize that was an option. Hopefully I'll stay a full 30 years because it's a good pension plan, but that's a ways away.
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Old 03-17-2009, 03:18 PM   #19
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Make sure you don't have extra fees in the 403b. Otherwise, the three spartan funds look good. The small cap fund has a high expense ratio and a lot of turnover, so expenses will consume a lot of your return.

If it were me, I'd put the fidelity money in the three spartan funds (maybe 1/3 in each) then use the Roth IRA's to get small cap exposure. Figure out an overall asset allocation and then use the different funds available across all your accounts (fidelity and vanguard) to get the lowest expense portfolio. I do this with my own portfolio - fstmx and fsemx are really the only two good funds available in my fidelity 401k, so I go to other accounts for international, small cap, value, and REIT exposure.
That expense ratio jumped out at me too. That seems like a good plan. I'll probably sit down with my wife tonight or tomorrow and start going through how we want to fund our Fidelity and Vanguard accounts.
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Old 03-17-2009, 04:27 PM   #20
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That expense ratio jumped out at me too. That seems like a good plan. I'll probably sit down with my wife tonight or tomorrow and start going through how we want to fund our Fidelity and Vanguard accounts.
And remember to include your wife's 401k or 403 or whatever she has into the mix. Between my 401k, my wife's 401k, and our IRA's we have good coverage of basically all asset classes. And we add some to an after tax account. But we manage everything as one big portfolio, not each account as a separate portfolio. Your wife may have good small cap funds in her 401k/403.

Also, I sent you a private message (you can access these in the upper right hand corner of the screen near your username).
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