There's something about turning 50 that makes you pay attention!

[hguyw]

Actually from reading this board for the last few weeks, I can tell most of you were paying attention long before 50

So yes, I am 50 (actually closer to 51) and very glad to have found this board. You all seem like such a jovial bunch and very helpful, not to mention knowledgeable.

So here's my situation. I have, through no fault of my own, nearly $400,000 in a 403b at work (a junior college). While my job is not terrible, and the pay/hours are good, it's incredibly frustrating most of the time (why do they hire you and then get in your way of doing your job? Sigh.). Morale is terrible there and has been for years. There are some recent signs of positive change, but still, I'm working on getting my ducks in a row so I can leave at 57, or if things really deteriorate, at 55. (In case it's important, this is my 27th year on the job and I have seniority over everyone in my department.) Then again, if things are going swimmingly, I may stay longer. I think it's safe to say I'm planning for the worst but hoping for the best.

Now, I'm sure those of you sitting on a million bucks don't think $400,000 is nearly enough, but I make around $58,000 a year, my personal expenses only run around $1700 - $1900 a month, I have no debt (although that was not always the case) other than what's left on my mortgage ($16,200) and that will be paid off in August of 2014. I'm single and live in NY so a good chunk of what I make goes to taxes. When I leave work I plan to continue my small side business ($8,000 - $10,000) and since I've filed good old Schedule C for many years now, I will continue to do so. I'm currently putting 7% of my gross into my 403b, and my employer's contribution will go from 3% to 4% on April 1 of this year, 5% next April and up to 6% by April of 2010. My plan is to increase my contribution to 15% of my gross in Sept. of this year (my entire pay increase+ will go to retirement). I'm also saving as much as I can in an online savings account for...whatever, including a new car at some point. (My current car is 7 years old and has 60,000 miles on it, but I drove the last one into the ground - 130,000 miles.) I may also start paying down the mortgage balance.

In short, the Joneses left me in their dust a long time ago.

I do plan to stay in New York (central upstate, not the city) as I like it here and have no desire to spend any part of my year in a place that's hot and has big bugs or scorpions.

I've always been intimidated by the whole idea of investing - I generally regard Wall St. as a suburb of the Vegas Strip - but I know that it's probably better to face my fear, given that my 403b is invested, like it or not. So I've been reading and trying to become an informed retiree wanna-be. I now "get" the fundamentals of investing, the magic of compound interest, bonds are safe but grow slow, stocks are volatile but potentially grow fast, diversity is good, etc.

My personal finance library starts with Personal Finance for Dummies, but my favorites so far are Your Money or Your Life and Work Less, Live More by Bob Clyatt. I have signed up for a one-night class on asset allocation on March 26,and have an appointment with a TiAA-CREF advisor on March 27.

My goal at this point is to be very, very, very smart with my money over the next 5 - 7 years. I have a lot of beginner questions, but I'll only ask one here and save the rest for a new thread elsewhere on the forums. Here goes: Everybody (and I mean everybody) says I should also have a Roth. Roth, Roth, Roth. I understand the difference between a Roth (after-tax contributions) and the traditional with before-tax contributions, but I still don't get why I need a Roth. It seems to me that, even living in NY, my retirement taxes will be so low (at least according to Clyatt) that I'm better off saving tax $$ upfront by continuing my contributions to my 403b or by opening a traditional IRA or something. What am I missing here?

Thanks in advance for any thoughts or ideas!

-hgw

[chinaco]

welcome

[Sarah in SC]

Welcome!
At your age, some could argue for the traditional IRA instead of the Roth. I personally would steer you to the traditional IRA. I think the conventional wisdom is after 40 or so, the traditional makes more sense. But remember, if all your savings are in "not yet taxed" accounts, you'll be paying ordinary income as you draw it out. That is why folks like the idea of having Roth funds that are already taxed, as well as just plain invested assets that are not tax-advantaged.

I do the Roth, but I'm 37. I have two academics in my family, and can sympathize with your work dilemmas. Glad to have you join us!

[Coach]

hgw, welcome to the board! Like you, I'm in higher ed and the bulk of my retirement savings are in a 403(b) with TIAA-CREF.

There are a lot of bad players in the 403(b) marketplace -- the good news is that TIAA-CREF is one of the good guys. I think you'll find your meeting with their advisor a fruitful one. And good for you for signing up for the asset allocation class!

I tend to agree with you -- I would maximize my pre-tax savings before deliberately going for after-tax retirement savings, like a Roth. The one exception I would make is if you have cash around, like an emergency fund. I'd fund a Roth with that, in something non-volatile like a money market fund. Roth contributions can be withdrawn at any time, so it can still serve as emergency funds.

57 certainly sounds like a reasonable goal, and 55 might work too, given your frugal lifestyle and commitment to saving. There's a great tool here, FIRECalc, that you might want to experiment with. There's a link at the bottom of the page.

I'm glad you've joined us!

Coach

[aaronc879]

You're right that most people on this board will think that $400,000 isn't much for someone pushing 51 but since you work for a college i'm assuming you have a pension coming and that makes a huge difference. If it's COLA'd that's even better. If you have paid healthcare in retirement too then your in very good shape.

[bbbamI]

Welcome to the board.

Yeah, there is something about turning 50, as I hit this landmark last November. When people tell me that 50 is the new 40, I figure they don't like being 50 anymore than I do.

I don't have a roth ira, but if I were younger, I probably would. You seem to know your expenses well and to me that is half the battle. Keep running your numbers and continue to learn. I bet you'll be just fine.

[WM]

Hello, and welcome! I'm no expert, by a long shot, but the other thing I like about Roths is that there's no mandatory withdrawal. If you don't think you'll need the money when you're 70, you might be better off with a Roth so you can let it sit there.

[hguyw]

Thanks so much for the welcome and great comments!

Unfortunately, there's no pension and no paid health insurance (after retirement, that is - I have excellent health insurance now) at this school. I know some faculty are with NYS Teachers, so that may be a "pension". But we had to choose one or the other, and 27 years ago, on the advice of a relative I chose TIAA-CREF.

I like the idea of putting the emergency fund in a money market inside a Roth. Right now, it's just sitting in a couple of savings accounts.

One of the reasons I like YMOYL and Work Less, Live More is that they both emphasize living below your means and tracking or charting. That makes much more sense to me that vague formulas of 70% or 80% of your current income. Using Clyatt's spreadsheets for estimating retirement expenses, I find that my monthly estimated expenses are well below the projected monthly "payout" from TIAA-CREF, for age 55 and especially 57. These estimates should become more accurate as I get closer to whatever "walk date" I finally settle on. And this is what I intend to discuss in detail with the TIAA-CREF adviser, as well hopefully unraveling the mysteries of asset allocation. I have contributed to my retirement (with 3% match) since the day I was hired...for 27 years, and it seems to me too, that I should have more in there than I do. Then again, my first year's salary back in 1981 was only around $11,000.

[Midpack]

I can't advise you because my situation is too different from yours. But if you have $400K - you're still ahead of most people your age. Your ahead of most of the Joneses who only appear to be ahead of you, but have little to show for it aside from what you see. You're on the right track here, good luck...

[bssc]

Hi and welcome.

I agree that $400K is still a nice amount, especially since you have low expenses. The Joneses only have debt on their McMansion so you are way ahead of them. I wouldn't worry about it. Looking forward to your contributions.

[freebird5825]

re I do plan to stay in New York (central upstate, not the city) as I like it here and have no desire to spend any part of my year in a place that's hot and has big bugs or scorpions.

well, hello, neighbor. i'm in central NY also. welcome to the board.

want legal advice? see a lawyer. want financial advice? see a CFP (fee based only, not selling anything but their time and expertise).

avoid people trying to sell you anything. have them put in writing exactly what they will analayze, what product(s) they will deliver (reports, recommendations etc), and how much it will cost. don't go by the hour, negotiate a fixed fee. most CFP firms have package deals, where they analyze your stuff from soup to nutz.

have them run through your situation and go from there. bring all your data.

good luck!