Target Date Fund Vs. Other options

[Cyrus-the-great]

Hi All,

I am 53 yrs old and started a Roth IRA with Vanguard this month. I have never had a retirement acct before and this is my first time investing. My income is usually 40k and I can contribute the max of 6500 each year. My employer does not offer 401k since I am self employed as a hairstylist. So far I have not put any money in the account since I am still unsure of which funds/etc.. to invest in.

I was thinking of the Vanguard target date fund 2030 which will take me to 65. Lets assume I will retire at 65. Will this fund even get me to an amount of money that will allow me to retire comfortably? Most of the calculators I used estimated that my retirement will be like 150k total when I retire. But thats because I put a 10% return per year. How am I supposed to survive on just 150k total? It doesnt make sense. I know I am starting very late, but I have only been in the US for 10 years and I am a hairstylist. My income never allowed me to save, as I live paycheck to paycheck, but recently my pay has been getting better and now I am able to contribute.

Is there anything else I can invest in that will bump up my retirement income? Should I invest in other items besides a target date fund? Can someone suggest 2 or 3 other vanguard types of funds or stocks/bonds/etc.. I can invest in to maximize my money? Can you give me their name so I can look them up and tell me how good they would be for someone in my position? I am open to some risk.

 

[samclem]

Welcome to the board!
First, congratulations on getting started on the retirement savings. $6500 per year on a $40K income is a lot, you'll certainly be saving a higher percentage of your income than most people do

Your questions have covered a broad swath, so I'll try to be concise with some information rather than write a book.

Tax status of your retirement account: A Roth IRA sounds right for you now. If there comes a time when you want to put away more than the limit on an IRA ($6500 currently, now that you are over 50), you might look into setting up a Roth Solo 401k. As a self-employed person, this option is available to you. It offers the same wide number of investment options as a Roth IRA, but allows higher contributions. They aren't hard to set up, but you don't need one right now if you are okay with the $6500 limit per year.

Investment choice: Of the thousands of available choices out there, you've already identified the one I would pick: A Vanguard Target Date fund. It has very low costs, and it will have you invested in a broad array of US and foreign companies (large and small), as well as bonds. By investing in this way you'll be >far< ahead of someone who pays an expensive advisor, or who picks funds with high fees, or who switches around constantly from fund to fund trying to outguess the market. This is the type of fund to start with, and if you just invest in it regularly history shows you will likely have better investment results than the >vast< majority of individual investors. Good pick. Yes, you could buy individual low-cost funds to do something similar, but there's little reason to believe they would perform better, and some good reasons to believe you'd get worse results. As far as choosing a Target date Fund--it basically boils down to the % of your money you'd like to have invested in stocks (vs bonds) now and later. The Target 2030 fund now has 70% stocks (US and foreign), 30% bonds. When you are 65, they will be at approx 30% stocks, 50% bonds, and 20% TIPS (inflation protected US government bonds). That's probably right for most 65 year olds, especially if they are depending on their investments to provide a lot of their essential monthly income.
How big will your investment balance be in 2030? Nobody knows. That's the long and the short of it. We can only go by what has happened in the past and try to estimate based on that. If you haven't done it yet, I would strongly recommend that you investigate this using FIRECalc. That program uses the real history of various investment types to let you see the likelihood of various outcomes. Unfortunately, the 10% annual return you may have seen in another retirement calculator is >extremely< unlikely to happen. It could happen, but it is quite unlikely. It is important to understand that inflation will play a big role here, and what you care about is inflation adjusted return (usually called "real return"). If your investments go up by 10%, but inflation is also 10%, then your investments haven't truly grown at all--you can buy exactly as much as when you started, nothing more. Firecalc can show you the anticipated inflation-adjusted returns for various mixes of investments.

Some unsolicited advice:
1) Don't get discouraged. Whatever you are able to save by the time you retire will leave you better off than you would have been. If it is $80K, that's enough to buy a lot of groceries for a lot of years.
2) Social security is your friend: It sounds like you will be earning a lot of your money in cash, and it sounds like you don't have a long earnings history in the US. Very important: Pay every dollar you can into Social Security! This is going to hurt: If you earn $40k, you'll be paying about $6K per year in total SS/Medicare taxes (you pay both the "employee" and "employer" side of the tax) At your age and income level, Social Security (and Medicare) is very good "investment" for you. It will be tempting to under-report your earnings to avoid SS ("FICA") taxes, but this will be a big disservice to you, and shortsighted (plus, illegal). I am not saying you would do this, but I know it is a common practice among many folks who earn their pay in cash. The earnings you report to SS will be the foundation of a lifetime "retirement" check from SS. You need 40 quarters (10 years) of payments to qualify, so get started. According to a calculator on the SS site, If you start now and begin collecting SS at age 67 (your "full retirement age") you'll get a check worth $1420 per month in today's dollars. In about 4 years you'll have gotten all of your money back, and will have that inflation-adjusted check coming in for the rest of your life. There is no other safe investment you can make today that will top this. There is no type of annuity that can top this. For you, it is a very good deal. And by paying in you'll be qualified for Medicare, which is probably just as important.

3) Don't try to increase the size of your retirement nest egg by increasing returns with exotic investments, acting on tips, hunches, what the TV says about the greatest new investment, etc. This is a sure way to lose a lot of money, and you need all of yours. The surest way to increase the size of your retirement savings is to put more in every month, if possible. If you can increase the amount you earn each hour or work more hours, it might make it possible to do this. Otherwise, just do the best you can.

Oops--I ended up writing a book anyway!
Again, welcome.

 

[Red Badger]

+1. What Sam said.

And, I'll double down on both the TDF for your investment and paying SS taxes. These will both reward you when you need it.

Good luck and welcome!

 

[redduck]

+1. What Sam said.

And, I'll double down on both the TDF for your investment and paying SS taxes. These will both reward you when you need it.

[-]Dood[/-] Dude, luck and welcome!

Fixed it for you.


Welcome, Cyrus-the-great.
I hope that you seriously consider samclem's suggestions (endorsed by Red Badger).

 

[OldShooter]

A slightly dissenting view: I like the concept of target date funds but I do not like target date funds. The reason is that it is nearly impossible to benchmark a target date fund's performance because the total return is a mixture of equity return and fixed income return.

What I suggest instead is to make your own target date fund buy buying a total market index fund and an index bond fund, flavor of your choice. Adjust the percentage in each to your taste annually if you like or less often if you're not concerned with small changes due to different rates of return.

If you do go with a target date fund, particularly one where the equity portion is actively managed (bad idea) rather than being indexed, be sure to look in the box once in a while. Here's an example of why this is important: https://www.reuters.com/article/us-...ers-on-risky-path-to-retirement-idUSKBN1GH1SI

 

[mystang52]

OP: I also endorse SamClem's response.

 

[joeea]

I am 53 yrs old and started a Roth IRA with Vanguard this month.

So far I have not put any money in the account since I am still unsure of which funds/etc.. to invest in.

Don't wait. It's far more important to be invested than to wait and be invested in exactly the right thing. Start now. Start with the target date fund. You can always move it to another fund if you change your mind.

I was thinking of the Vanguard target date fund 2030 which will take me to 65. Lets assume I will retire at 65. Will this fund even get me to an amount of money that will allow me to retire comfortably? Most of the calculators I used estimated that my retirement will be like 150k total when I retire. But thats because I put a 10% return per year.

You won't get 10% return per year for 12 years. That's not going to happen.

How am I supposed to survive on just 150k total?

You aren't.

You'll need to have more or spend less or both. You should plan on working past 65. You may want to pick up additional work on the side.

And if you are entitled to social security benefits, you should delay them until you are 70.

 

[travelover]

A slightly dissenting view: I like the concept of target date funds but I do not like target date funds. The reason is that it is nearly impossible to benchmark a target date fund's performance because the total return is a mixture of equity return and fixed income return.

What I suggest instead is to make your own target date fund buy buying a total market index fund and an index bond fund, flavor of your choice. Adjust the percentage in each to your taste annually if you like or less often if you're not concerned with small changes due to different rates of return.

If you do go with a target date fund, particularly one where the equity portion is actively managed (bad idea) rather than being indexed, be sure to look in the box once in a while. Here's an example of why this is important: https://www.reuters.com/article/us-...ers-on-risky-path-to-retirement-idUSKBN1GH1SI

While I don't disagree, I think for a novice investor it is a better long term bet to keep it very simple and straight forward and just do it. I personally squandered valuable years pondering exactly what to do and instead accumulated cash when I should have been in the market. Since this was at the beginning of my investing, I've paid a compounded penalty for my delay. The enemy of good is perfection. My advice to the OP - go with samclem's simple advice.

 

[OldShooter]

... My advice to the OP - go with samclem's simple advice.

I don't think that is a bad recommendation at all, especially considering that the equity portion of the VG fund is in their index funds. Much less need to look into the box. And probably the OP, being a new investor, is not going to be trying to do much benchmarking anyway.

One point regarding target date funds: There is no particular reason for the target date to match the investor's planned retirement date. If the investor wants to be more aggressive, pick a target date that is later. Less aggressive? Pick one that is earlier. The only point of the target date is that the fund manager thinks that the equity/fixed income allocation planned for that date is an allocation that is suitable for the average investor. For the OP who is working with a relatively small amount of money for retirement savings, it may be appropriate to go with a more conservative/earlier target date in order to reduce risk of being even more short of money.

 

[Red Badger]

I don't think that is a bad recommendation at all, especially considering that the equity portion of the VG fund is in their index funds. Much less need to look into the box. And probably the OP, being a new investor, is not going to be trying to do much benchmarking anyway.

One point regarding target date funds: There is no particular reason for the target date to match the investor's planned retirement date. If the investor wants to be more aggressive, pick a target date that is later. Less aggressive? Pick one that is earlier. The only point of the target date is that the fund manager thinks that the equity/fixed income allocation planned for that date is an allocation that is suitable for the average investor. For the OP who is working with a relatively small amount of money for retirement savings, it may be appropriate to go with a more conservative/earlier target date in order to reduce risk of being even more short of money.

I was lucky enough to use a TDF when I was first able to participate in a 401K (late 30's). I had no idea what I was doing, and at the time, it seemed like a good place to park my $$. As I educated myself on investing (much later), I gradually shifted from TDF to broad based, low cost index funds. Megacorp had decent (Fido) fund options and very reasonable fees. That was another break.

Good advice from Sam and Shooter. Get in now with a TDF. Once the training wheels come off, consider low cost, diversified index funds.

 

[Omega]

Great responses to this novice investor. I'm 53 also and will be opening a Roth IRA with VG before the end of the year.

I have 10,000 in my checking account right now, which is all the cash I have. Should I take $6,500 and leave myself less than $5,000 or just make a smaller contribution this year and plan to max it out via monthly payments for next year?

I posted my numbers in the new members forum.

 

[samclem]

Great responses to this novice investor. I'm 53 also and will be opening a Roth IRA with VG before the end of the year.

I have 10,000 in my checking account right now, which is all the cash I have. Should I take $6,500 and leave myself less than $5,000 or just make a smaller contribution this year and plan to max it out via monthly payments for next year?

I posted my numbers in the new members forum.

If you think that the $5000 left in your checking account will see you through any short-term unplanned expenses, then I'd urge you to put the max amount ($6500 for you, being over age 50) into your IRA/Roth IRA now for 2018. If you don't fill up the 2018 contribution limit, the unused portion is gone forever, it is a missed opportunity.

Going with monthly contributions in 2019 (putting the contributions on autopilot, if that is feasible) is a great way to go. If you don't see the money, you don't get a chance to spend it.

I couldn't find which of your other posts had your numbers spelled out. I'm assuming you've already figure out that a Roth IRA is better for you than other alternatives (traditional IRA, 401(k), etc).


Also, if it is any help, remember that you can withdraw your >contributions< (not the earnings) from your Roth IRA without IRS penalty at any time. It's not a great thing to do, because that money won't be available to compound tax free anymore. But, if you are thinking about a true emergency fund where the chances of needing it are slim, in your situation it is better to get it into the Roth IRA and earning money for you tax free rather than having it sit in a checking account on the slim chance you'll need it. There's no down-side to plunking it into the Roth, it's better than not making the Roth contribution in the first place. The situation is different for a non-Roth Traditional IRA, where withdrawing your contributions comes with a stiff penalty.

 

[Cyrus-the-great]

1. Thanks for your great advice! I enjoyed your book The reason i asked about other options besides a target fund is because I feel like my ending amount at retirement is going to be super low for me to live off of. I am not going to be lucky like the rest of you and have 1 million dollars in my account. Maybe if I am lucky I will have 100k-150k depending on the rate of return each year. That amount seems low to live off. Does that mean I will have to only live on like 10k per year to stretch my money for 10 years? Is this even doable? LoL

2. My SS account online says that i will earn $589 when i am 67. I claim alot of deductions on my taxes. Such as equipment, tools, mileage, and all the basic deductions that hairstylists deduct since I am a 1099 employee. My accountant tries to get me so many deductions added so he can lower my income level. So when I said 40k that was before deductions. I think after I input the deductions its more like 20k or something. I think I need to start paying more into SS and because I am claiming so many deductions on my taxes. Or maybe this doesnt even matter? I should get a new accountant I dont know what the heck he does with my taxes. My SS account for last year shows I made 17k and thats what the $589 is based off, but theres no way I made such a low amount, because I can afford a nice car, a nice apartment and do the things I love.

Anyway, do you think I should just invest in the Target date fund and forget about this and just accept that my retirement account wont have much in it? Or should I try to find other funds and stocks that can give me more money and bump up my retirement amount? Lets disregard whatever social security will give me for the moment, because from what Im seeing it wont be much.

Welcome to the board!
First, congratulations on getting started on the retirement savings. $6500 per year on a $40K income is a lot, you'll certainly be saving a higher percentage of your income than most people do

Your questions have covered a broad swath, so I'll try to be concise with some information rather than write a book.

Tax status of your retirement account: A Roth IRA sounds right for you now. If there comes a time when you want to put away more than the limit on an IRA ($6500 currently, now that you are over 50), you might look into setting up a Roth Solo 401k. As a self-employed person, this option is available to you. It offers the same wide number of investment options as a Roth IRA, but allows higher contributions. They aren't hard to set up, but you don't need one right now if you are okay with the $6500 limit per year.

Investment choice: Of the thousands of available choices out there, you've already identified the one I would pick: A Vanguard Target Date fund. It has very low costs, and it will have you invested in a broad array of US and foreign companies (large and small), as well as bonds. By investing in this way you'll be >far< ahead of someone who pays an expensive advisor, or who picks funds with high fees, or who switches around constantly from fund to fund trying to outguess the market. This is the type of fund to start with, and if you just invest in it regularly history shows you will likely have better investment results than the >vast< majority of individual investors. Good pick. Yes, you could buy individual low-cost funds to do something similar, but there's little reason to believe they would perform better, and some good reasons to believe you'd get worse results. As far as choosing a Target date Fund--it basically boils down to the % of your money you'd like to have invested in stocks (vs bonds) now and later. The Target 2030 fund now has 70% stocks (US and foreign), 30% bonds. When you are 65, they will be at approx 30% stocks, 50% bonds, and 20% TIPS (inflation protected US government bonds). That's probably right for most 65 year olds, especially if they are depending on their investments to provide a lot of their essential monthly income.
How big will your investment balance be in 2030? Nobody knows. That's the long and the short of it. We can only go by what has happened in the past and try to estimate based on that. If you haven't done it yet, I would strongly recommend that you investigate this using FIRECalc. That program uses the real history of various investment types to let you see the likelihood of various outcomes. Unfortunately, the 10% annual return you may have seen in another retirement calculator is >extremely< unlikely to happen. It could happen, but it is quite unlikely. It is important to understand that inflation will play a big role here, and what you care about is inflation adjusted return (usually called "real return"). If your investments go up by 10%, but inflation is also 10%, then your investments haven't truly grown at all--you can buy exactly as much as when you started, nothing more. Firecalc can show you the anticipated inflation-adjusted returns for various mixes of investments.

Some unsolicited advice:
1) Don't get discouraged. Whatever you are able to save by the time you retire will leave you better off than you would have been. If it is $80K, that's enough to buy a lot of groceries for a lot of years.
2) Social security is your friend: It sounds like you will be earning a lot of your money in cash, and it sounds like you don't have a long earnings history in the US. Very important: Pay every dollar you can into Social Security! This is going to hurt: If you earn $40k, you'll be paying about $6K per year in total SS/Medicare taxes (you pay both the "employee" and "employer" side of the tax) At your age and income level, Social Security (and Medicare) is very good "investment" for you. It will be tempting to under-report your earnings to avoid SS ("FICA") taxes, but this will be a big disservice to you, and shortsighted (plus, illegal). I am not saying you would do this, but I know it is a common practice among many folks who earn their pay in cash. The earnings you report to SS will be the foundation of a lifetime "retirement" check from SS. You need 40 quarters (10 years) of payments to qualify, so get started. According to a calculator on the SS site, If you start now and begin collecting SS at age 67 (your "full retirement age") you'll get a check worth $1420 per month in today's dollars. In about 4 years you'll have gotten all of your money back, and will have that inflation-adjusted check coming in for the rest of your life. There is no other safe investment you can make today that will top this. There is no type of annuity that can top this. For you, it is a very good deal. And by paying in you'll be qualified for Medicare, which is probably just as important.

3) Don't try to increase the size of your retirement nest egg by increasing returns with exotic investments, acting on tips, hunches, what the TV says about the greatest new investment, etc. This is a sure way to lose a lot of money, and you need all of yours. The surest way to increase the size of your retirement savings is to put more in every month, if possible. If you can increase the amount you earn each hour or work more hours, it might make it possible to do this. Otherwise, just do the best you can.

Oops--I ended up writing a book anyway!
Again, welcome.

 

[samclem]

Cyrus-the-Great,
Thanks for the note. Some more comments:

The reason i asked about other options besides a target fund is because I feel like my ending amount at retirement is going to be super low for me to live off of. . . . Maybe if I am lucky I will have 100k-150k depending on the rate of return each year. That amount seems low to live off. Does that mean I will have to only live on like 10k per year to stretch my money for 10 years? Is this even doable? LoL

You are right, of course. It's not a lot of money to last the rest of your life. There are some things you can do to improve this situation, but taking on too much risk is not the best way to enhance the size of your available savings. The amount you take from your savings will be just one part of what you have to live on. You'll also have SS, and maybe you have other sources of income. The good thing about piling money into this account is that it gives you flexibility. If you don't have that pile of money and only have a monthly check from SS or elsewhere, you won't have the flexibilty to spend a big chunk of money on something in order to save a >lot< of money later (maybe a down payment on a house, etc). At some point well in the future you might even decide that you can should buy an annuity with that pile of money to give you the most to live on each month (it would be a >bad< idea now, but maybe a good idea when you are 85 or so). Every dollar you save now helps you later, so do what you can.

My SS account online says that i will earn $589 when i am 67. I claim alot of deductions on my taxes. Such as equipment, tools, mileage, and all the basic deductions that hairstylists deduct since I am a 1099 employee. My accountant tries to get me so many deductions added so he can lower my income level. So when I said 40k that was before deductions. I think after I input the deductions its more like 20k or something. I think I need to start paying more into SS and because I am claiming so many deductions on my taxes. Or maybe this doesnt even matter?

It matters. In general, most accountants will do everything they legally can do to reduce your taxable income. In your case, that might or might not be the smartest approach.

Whether you are single or married, the income of your spouse, and whether you file a joint tax return all enters into this. This determines what your standard deduction is, and there's a chance that you'd be better off, overall, if your declared income (and income subject to SS taxes) was actually higher.

My SS account for last year shows I made 17k and thats what the $589 is based off

. . .

Lets disregard whatever social security will give me for the moment, because from what Im seeing it wont be much.

Okay, but we should re-visit it soon. It sounds like your SS check may be the largest part of what you have to live on when you retire, and there are things you should do right now (i.e. before the end of the year) that will help increase the amount you get. This is important.

Anyway, do you think I should just invest in the Target date fund and forget about this and just accept that my retirement account wont have much in it? Or should I try to find other funds and stocks that can give me more money and bump up my retirement amount?

I wish I could offer a suggestion that would provide a bigger nest egg with less risk. If there was such a thing, everyone would be buying it. You put all you money on something highly risky, and it could pay off--but there's a better chance that you will lose a lot of money. You want to be highly diversified across many companies, in many countries, and to have good corporate and government bonds that you can count on. A Vanguard Target Date Funds is, I think, your best bet.



Do what you can, you'll be better off for it.

 

[Walt34]

Anyway, do you think I should just invest in the Target date fund and forget about this and just accept that my retirement account wont have much in it? Or should I try to find other funds and stocks that can give me more money and bump up my retirement amount? Lets disregard whatever social security will give me for the moment, because from what Im seeing it wont be much.

With increased returns comes increased risk. If you were 25 you could safely make riskier investments because you'd have time to "weather the storms".

But you don't have that time now. At 53, you should (IMO) stay conservative because you are not in a position to make gambles. While the prospects of what you'll have in retirement are perhaps disappointing, things can and very well may be far worse if you take on too much risk. As others have said you could do far worse than a target date fund, which is excellent for new investors. So my advice would be to stay with the target date fund.

 

[Cyrus-the-great]

Thanks for the tips! I know that stocks and such are risky and offer no guarantee and it is a risk for me at this age to use that. Unfortunately I am not in my 20s lol. I will just invest in the Target fund for now and rely on whatever SS gives me. Thats all I can do, I guess.

I was not given a very good life as I was a refugee, escaped from war and came to the US for a better life. I could not get an education in my country due to the war and discord and due to this I had to work different jobs and eventually settle on hairstyling as a source of income. My prospects for my future dont look too great, but having a target fund is better than nothing, I guess.

My wife is the one who told me to open the fund and get serious about my retirement. She did research for me and chose the target fund. She is around 2 decades younger than I and says I should not worry too much because she will be there to support me financially when I retire, since she will still have many years to work and earn money. Yes we will file a joint tax return and her income is close to six figures. I presume by the time I hit retirement she will be making more money. I just feel like a failure because my life didnt allow me to save and think about retirement. All my life I was running from turmoil from country to country to set up a stable life and working low paying jobs. Sadly that stability came too late when im in my 50s now. But I will just accept the reality and try to save as much as I can now. If anyone thinks of any other funds/stocks/bonds etc that may be good, hit me a message!

 

[samclem]

I will just invest in the Target fund for now and rely on whatever SS gives me. Thats all I can do, I guess.

It's probably going to be a lot better than nothing. It is good you are starting. I'd recommend that you not think about it too much, or try to boost returns by jumping into the latest hot stock sector, etc.

My wife is the one who told me to open the fund and get serious about my retirement. She did research for me and chose the target fund. She is around 2 decades younger than I and says I should not worry too much because she will be there to support me financially when I retire, since she will still have many years to work and earn money. Yes we will file a joint tax return and her income is close to six figures.

Well, that's surely going to be an important part of your retirement financial picture. I'm sure she'll be happier if you are happy. BTW, when she does start taking her own SS (approx 34 years from now, so you'll be about 87), you can consider whether you want to stop taking your SS based on your own earnings and instead take a "spousal benefit" check based on her earnings. That check would be just 1/2 of her SS check, but due to her pay level and the number of years she contributed, it still might be a larger check than what you were getting on your own record. Sure, age 87 is a long way from now, but knowing that this additional income stream will be available eventually lets you know how long you need to get by on just your own SS check and your savings.

 

[Omega]

I couldn't find which of your other posts had your numbers spelled out. I'm assuming you've already figure out that a Roth IRA is better for you than other alternatives (traditional IRA, 401(k), etc).


Thanks for your great advice. All of my retirement money (500k in a profit sharing plan and a small pension) is pre-tax, so I think Roth is the way to go. It's going to be scary having so little in my checking account, but hopefully it will motivate me to save more.

 

[mountainsoft]

My SS account for last year shows I made 17k and thats what the $589 is based off, but there's no way I made such a low amount, because I can afford a nice car, a nice apartment and do the things I love.

The 17K is your adjusted gross income after deductions, so it may be a lot lower than what you see as your gross income on your paychecks.

As for the nice car and whatnot, did you pay cash for those? Just because you can make payments doesn't mean you can afford it. You'll pay the cost of the item plus all of the interest owed over time. If you're making payments (which will most likely be higher interest than anything you'll earn with savings) the best thing you can do is to pay off those loans as soon as possible. If you really want to get serious about saving for the future, you'll need to reduce your expenses now and direct all extra money into savings.

My wife is the one who told me to open the fund and get serious about my retirement... Yes we will file a joint tax return and her income is close to six figures.

Do you plan to stay married up to and through retirement? If so, don't worry so much about your individual status. Think more as a couple. Contribute to your IRA. Have your wife contribute to an IRA. Can your wife save additional money from those six figures also?

Like you my personal income has been quite low most of my life. I had low paying jobs starting out and later quit working to be a stay-at-home Dad. My SS income estimates are equally as low. But as a couple my wife and I worked together to pay off all debt, build a home mortgage free, and set aside money for retirement. While I didn't "earn" a lot, we were able to "spend" a lot less because I could take care of things myself instead of having to pay someone else. I've had a small home business for the last 25 years or so but it's still small potatoes compared to my wife's county job. But as a couple we live comfortably and plan to retire in five years when I'm 60 and she's 55.

Together you and your wife have a much better future than you are predicting on your own.

 

[FreeBear]

Glad you figured out that you need to invest and save! Many people in this country live paycheck to paycheck, even some with paychecks 2 or even 5 times greater than yours.


Do you have a 3-6 month cash emergency fund (online savings account)? Get one if you don't. Beyond 3-6 month, you have your ROTH.



I agree with the consensus regarding sticking with Vanguard target date is a good idea. Even more important, critical, actually, is to insure that you have 40 quarters (10 years) of work recorded by social security. This insure you get social security and Medicare (decent health coverage at 65). Again, this is CRITICAL.


How much are you spending each year? This too is critical to understand. The less you spend, the more you can save. The more you save now, the less you need to spend in retirement.



Once your emergency fund and Roth funded, I'd suggest opening a vanguard taxable (after tax) brokerage account. Save whatever you can beyond the Roth. You may have to cut elsewhere.


Your savings rate is solid for your income, but you are a little late to the game. You'll have to w*rk very hard to make up for lost time. Cutting expenses in order to save and invest more is your main tool.

 

[FreeBear]

My wife is the one who told me to open the fund and get serious about my retirement. She did research for me and chose the target fund. She is around 2 decades younger than I and says I should not worry too much because she will be there to support me financially when I retire, since she will still have many years to work and earn money. Yes we will file a joint tax return and her income is close to six figures. I presume by the time I hit retirement she will be making more money. I just feel like a failure because my life didnt allow me to save and think about retirement. All my life I was running from turmoil from country to country to set up a stable life and working low paying jobs. Sadly that stability came too late when im in my 50s now. But I will just accept the reality and try to save as much as I can now. If anyone thinks of any other funds/stocks/bonds etc that may be good, hit me a message!

Surprised you didn't mention your wife and her income sooner. What are you savings as a family? How much has the family already saved? What are your expenses as a family??


With this kind of combined family income you both should be maxing out your IRA/401k/Roth and also save & invest in a taxable Vanguard brokerage (target date).


I'm concerned that you are still looking for a "hot tip", a secret to avoid the hard w*rk of spending much less to save and invest much more. Also don't assume your wife will always make this kind of money. The economy is changing quickly. She may have trouble retaining this earning power in her 50's, perhaps even 40's. Got to save and invest!

 

[RunningBum]

I see a few references as to how "lucky" the rest of us are. That rubs me the wrong way. We're not lucky, we worked hard and planned, and yes, we were fortunate to not be born in a war zone but it's more than that. I understand that you could not set aside money much earlier because of your situation, but maybe you could consider yourself lucky that you were able to escape the war and find a better life here. It's all relative.

You also ask "How am I supposed to survive on $150K?" as if you are owed something more somehow. Maybe it's my incorrect take on what you are saying. But this is your problem to solve. Probably you can't retire at 65. If you work until 70, you can continue adding to your savings, continue building up SS credits, and defer taking benefits until 70. The latter two will give you a much larger SS benefit. And maybe you need to look at how you can cut back spending more now to save more.

As far as investments go, don't look for any magic. The higher the potential return, the more risk you take. You could go all stocks, like the Vanguard Total Stock Fund since you have a long ways to retirement, or go with a later target fund like 2035 or 2040, which has more equities and fewer bonds. That's about the most additional risk I would take to try to improve returns, and if you go 100% stock you might look at backing off that as you get closer to retirement.

In any case, good for you for looking toward the future and taking steps to improve your lot. Good luck.

 

[Cyrus-the-great]

Thank you for all your inputs. I am learning alot! Expenses are the typical expenses rent, car, food, gas, etc... we have no mortgage to worry about just apartment rent and utilities ($1800)this city (D.C. is pricey). My car will be paid off in full in about 6 months. I pay $380 each month for my car. My wife's lease for her car ended in 2016 so she gave it back and she did not get any other car. We just have mine. Credit card debt is none. We have only 30k in savings. We have been married 3 years and we do not want children for various ethical, environmental & financial reasons that I do not want to bore you with explaning. So cost of kids will not be a burden, thankfully.

She has a 401k at work that she got with the employer this year. She is contributing as much as the employer match. She has like 4k in it now. Its her first 401k though. She has also opened a roth ira with vangaurd also and has already contributed the $5500. She is in the target fund 2050. Whether or not she should be in a target fund since she is younger and has more risk to bear is another question. I am not sure about this aspect. If this 2050 is good for her or not is something I dont know. She does all the research and found that the target fund is easy to deal with, less fees and headache. Perhaps this is why she chose it.

Well, Im not asking for a magic cure, i was just asking what more can I do to better my financial future. Maybe it sounded weird when I wrote it. I wanted other ways that can help me. For example, does buying a home help me with retirement income? If I buy now and in 15-20 years sell and make a profit will that help? Is it wise? Another example: should I leave my employer and go open my own hair salon which may help my income grow and allow me to have more for retirement? Is this wise? I was just looking for some examples or ways I can bump up my growth, thats all. I know everything has risk, I can lose money, things can go wrong, the economy can bust, etc...Im not looking for magic miracles. Just something smart or wise I can do to help myself. If you ask in google "what to invest in" a lot of options come up from Gold to real estate to peer to peer lending yaddi yadda. So, I just wanted alternative investment options BESIDES the target fund. We have all agreed that investing solely in the stock market isnt wise for my personal scenario. Thank you for that

Dont worry, I dont assume anything about my wife and her career. I am very well aware that she could lose her job, get ill, or some unforseen issue could happen to disrupt everything we have. I dont rely on anything in this life, because the tide can change in any given moment. My bad, when I said lucky what I meant was "smart", "prudent", "wise", "guided". I didnt mean lucky like born with a diamond spoon in your mouths. You are lucky in a sense that maybe you had someone to guide you in your life, maybe you had jobs that gave you a 401k, maybe you had a way to save and grow and started younger than me, whereas I didnt have much of this. If it werent for my wife today I would not know a single thing about all this. She inspired me to invest and get serious about my future. You ask if I plan to stay married, God willing yes, I plan on it and plan on marrying her again in the next life, if there is one.

I will def. take all this advice about SS, the target fund, saving more during the year, spending less, maybe finding an employer who gives me more comission than 50%. My previous one gave me 60% and before that i used to take 100% home since I rented my own hair booth and didnt have a boss. Yes, there are ways for me to be smarter, I guess.