Please help, I must make a decision this afternoon


J. Tanne

What is the best option for me now? I am 23 years old, currently a teaching assistant, but I will have my degree next spring (2005) I currently make 12,000 a year, but my income should go up to 30,000 after I get my degree. I have a roth ira that is worth about 500 dollars but somehow it is losing money. It is invested in SHRAX. I was with Primerica, but I have heard a lot of bad things about them, so I stopped contributing, plus the fact my money was getting less and less ( I actually contributed 600) I also have money going into state retirement which is manditory, but I don't know how much it is worth. Now an ING rep is here today talking about a 403b plan and I NEED to start saving for retirement, but I really don't know what I should do. I use those calculators and they basically tell me I will never have enough money to retire. But, I'm only 23!!! How can I not have enough time to save?
Re: Please help, I must make a decision this after

My first advice would be to not make any decision this afternoon. You've got plenty of time. I did not start thinking about retirement until I was 30.

As far as losing money in your IRA - Lot's of folks have, but don't stop contributing. You are buying shares at a reduced cost.

Get some books on Investing for the long haul. Search this site for some recommendations. Your life will take many twists and turns in the next 20 years, so trying to figure out how much you'll actually need is impossible.

Develop some good savings habits - Try to save 30% of your gross income. - Don't go into debt, except to purchase a house (when you're sure you want it) - Live beneath your means and you'll be fine.
Re: Please help, I must make a decision this after


Just my opinion here... Don't do anything today other than gather info, and only if risk-free. Don't feel obligated to do ANYTHING! Very few investing decisions need to be made right away. Investment opportunities will be there next week, month, etc. The key is just not to forget to finally do it.

I took a quick look at SHRAX, it has an expense ratio of 1.21%. High! I don't know if you are paying all that in an IRA or not.

If you are going to be moving to get a full teaching job when you get your degree, you may need some ready cash for expenses. I would just save it in a bank account till established in the new job. But in the meantime you could be coming up the learning curve on investing.

With a salary of 12k, obviously one will not be able to retire, but even at 33k today I don't think it can be done without extreme sacrifice or living in another country. But you are betting that over the years, that your abilities and salary will exceed the inflation rate. Thereby allowing you to save more $ each year. Even save a significantly larger PERCENTAGE of your salary. And that is the key to building a sufficient nest egg.

That is where many people lose it. They think "retirement is so far away, besides, I probably won't live that long, anyway!" So as their real salary goes up, their consumption rises to meet their new income.

A nice phrase - "Consumption Rises to Meet Income". It describes the majority of people in the general population.

Oh yeah, on my calendar, "next spring" is 2004, not 2005! :D
Re: Please help, I must make a decision this after

J. Tanne,

Do you need to make a decision today because of a benefit "open window" for the 403b? I don't think that educational institutions tend to have firm open windows. Even if they do have a window, it should open at least yearly. Spend some time learning about investing, cruise the library racks on investing basics, take a few hours a week and read a book or two, spend some time here, relax.

Next, at $12k a year, how much can you really afford to save? My guess is not much, but you need to answer this question.

You have plenty of time to save for retirement, but each year you are not investing means you will need to work longer before you can retire or you will need to save more money later on to be able to "catch up".

Cruise some of the mutual fund company sites, some have really good beginners info. Read a little and bring your questions to this board.

Good luck,

Re: Please help, I must make a decision this after

Make sure you have insurance: health, car, life (if you have dependents), and disability. Then pay off any debt you may have, and sock away 6-12 months of living expenses, just in case. While you're at it, get yourself into the position to pay cash for cars so you aren't borrowing for that. At some point you'll probably want to save for a down payment on a house. And plan to improve your education as you go to improve your earning power. If you are able to contribute to a retirement plan, expenses are important. Most of my money is with the Vanguard Financial Group. Read Eric Tyson's book, Personal Finance for Dummies". And pay close attention to what Cut-Throat, Telly, and Newellcr said. Good luck.
Re: Please help, I must make a decision this after

Thanks for all the advice. Yeah, I guess what I really need to focus on now is my debt. Right now my husband pays all the utilities, I only pay for bills that I had before we got married, I actually am able to save a little money, but if my money is only earning 3.5% with the 403b, it is probably better off going toward my 10% interest rates on debt. I will still go talk to the rep, but I guess just for info. By the way, how do I know if a company is a good one or not? Primerica I was able to find things on the internet about. What I really need is someone to sit down with me and say "ok this is where you need to start", etc. My main concern is that I don't want to be working until I'm dead.
Re: Please help, I must make a decision this after

J. Tanne,

Primerica is a little different than other financial companies. They have a huge part-time workforce. There are pros and cons to this type of structure. You may or may not have a good rep/advisor. My experience is that Primerica pushes life insurance first even if you don't need life insurance. Anyway, I understand - you don't want to work your life away. Try the book that Unclemick suggested. You will probably find that you don't need anyone to sit down with. A good book will help you define your needs or your family's needs. Go see the 403b rep and have him/her teach you about the 403b. If you stay in education, TIAA-CREF is a great company.

Good Luck,

Re: Please help, I must make a decision this after

The State Retirement Plan could be some sort of defined benefit plan (like a pension), as opposed to the 403(b), which is a defined contribution plan. You could find out more info about it through a Google search for "[Your State] Retirement System [or Plan]".

I would start with the "Dummies" books. "Personal Finance for Dummies" and "Insurance for Dummies" are excellent. I started with them. Excellent general information and WARNINGS about unscrupulous people in the financial services industry.

Some excellent companies (that administer 403(b)'s) are TIAA-CREF (my father and brother use it), Vanguard (my mother uses it), and Fidelity. You can usually tell if a company is looking out for your best interest (e.g. trying to make you money, rather than trying to make money from you) by the level of fees they charge. The lower the fees, the more money you keep.

I'm 28, and I can't tell you how much I wish I had paid more of our credit cards off sooner. Also, an emergency fund of 6-12 months of living expenses is a great idea. You never know when surprises (baby, job loss, roof collapsing, etc.) will spring up.

With life expectancies increasing, the chances of you working until you're dead is quite unlikely if you become a diligent saver. Working until 60 or 65, maybe. But that's still 30-40 more (or maybe more) years to live. The more you can save (either through paying off debt or investing) now, the earlier retirement will come. Heck, you might even find something you love to do that someone will pay you for.

First rule of investing: Don't invest in anything you can't understand and explain to a child. If you can't tell who the sucker is, it's you.

- Alec
Re: Please help, I must make a decision this after

By the way, how do I know if a company is a good one or not? ... What I really need is someone to sit down with me and say "ok this is where you need to start", etc.

Be very cautious about financial service reps., brokers, etc. Their interests and yours are seldom aligned. If I had listened to the financial planners I consulted when I first got into this, it would have been a financial disaster for me. It won't hurt to hear what they have to say, just don't act upon anything they tell you until you learn the ropes yourself. That may take about six months. Read, read, and read some more.

People who take the time to learn about personal finance often accumulate enough assets to dramatically change their lives - people who rely on financial reps, usually don't. There's a tendency to think, "hey, this is an expert who knows far more than I do, so I'll take his advice." But it's not like that with financial products. The guy sitting across the desk from you is a sales-person, not a counselor. So beware and go slow. And keep in mind that some of the very best companies don't have any sales reps at all. I know my favorites don't. Also, check out this excellent web site devoted entirely to the 403(b). There's some very good educational information (and warnings) there:
Re: Please help, I must make a decision this after

I will second the notion re. financial reps/advisors.
I ignored just about everything they suggested and
am quite satisfied with the results.
Re: Please help, I must make a decision this after

Now that I am 58, I can't help but be amused by someone who, at 23, feels that they must make an immediate decision regarding saving/investing for retirement.

Take care of first things first. One is, get rid of any kind of high interest debt, especially on credit cards. About the only kind of debt that is accectable is a mortgage on a house, but to get a good rate on that you need to have accumulated enough money to make a down payment of around 20%.

Another is to make sure that you have insurance to cover any major losses or health problems. But you will save money in the long run by having a high deductible that does not cover minor losses or health needs.

For young investors, Roth IRA's are particularly good for a couple of reasons. Unlike a 401(k) or 403(b) plan, you can't deduct your contribution to the plan from your income taxes -- but that doesn't matter much because you are in a low tax bracket (unless your husband makes a high income). The tax savings come after retirement, when you can withdraw all money from a Roth IRA tax-free.

But in the nearer future, you may also withdraw whatever you have contributed to a Roth IRA (not including any increase in its value) without taxes or penalties. This could be particularly useful for something like a down poayment on a house.

Virtually all financial institutions offer Roth IRA accounts. I would particularly recommend the Vanguard company ( because it provides excellent service at minimal cost, and has a wide selection of mutual funds in which to invest, either within an IRA or in a regular non-retirement account. If you look through the various posts in this forum, you will see a lot of favorable comments about Vanguard.

A general principle of investing is that younger people should invest mostly in stocks, and the best way to do this (at least initially) is through an index fund such as Vanguard's Total Market Index. However, until you accumulate enough savings (say, $10,000 or so) to cover planned purchases such as a house, or emergencies, I would keep all of your investments in mutual fund that holds short term bonds, such as Vanguard's Short Term Corporate fund. It won't experience periodic declines the way that the stock market will.
Re: Please help, I must make a decision this after

You all have given me some GREAT advice. Thank you so much! I got the info from the rep and she didn't try to push opening an account right away which I thought was really good. She also suggested I keep the roth becasue it will benefit me in the future. I have actually read parts of Personal Finance for Dummies, but I will try some of the others. Thanks again to all.

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