If you have a mortgage rate in the 3's to me you should always go with investments over that. Rate of return will be hard to beat with a rate that low
edit: Unless you have PMI, getting that removed might be worth doing first
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How to Invest for Retirement
- Thread starter Piecake
- Start date
If you have a mortgage rate in the 3's to me you should always go with investments over that. Rate of return will be hard to beat with a rate that low
edit: Unless you have PMI, getting that removed might be worth doing first
demosthenes
Member
This isn't a math question. Well I suppose it is, it's just convincing my other side of the brain it is. My house is 3.375. 401k returns have been higher for the last year, 3 years, 5 years. Part of me I think would prefer hitting the mortgage.
Split it perhaps? I know some people love the thought of not having a mortgage. If that's eating at the brain more then going with potentially higher returns on the investment side go with that. I don't think either option is wrong
My advice, and this is not based on math, is to split it, with the bulk going to retirement, with caveats.
It depends how big your mortgage is, and whether you plan to stay there long term, and how healthy your retirement savings is, and how important being out from under the mortgage is to you. The raw math will favor the 401k, but to me it's not about the interest rate or rate of return. If it's purely about that to you, then put it all into the 401k and don't look back.
If you're on track for retirement, and want the mortgage paid off, I'd do something like a 25/75 split to the mortgage and retirement, respectively.
My mortgage is 4.375%, and my wife and I have put extra on it every single month we've lived here, roughly 1/4 what we put into retirement. The past two years we have put a lot of extra on it, and we pay it of next August. My retirement is on track, but would be much larger if we put it all into retirement instead. But already the anticipation of being mortgage-free at age 41, after just 13 years in the house, is priceless.
Randolph Freelander
Member
That's the part of you that you tell to shut the hell up.
401K returns are going to exceed your mortgage interest rate, certainly over the long term, and retirement investing and mortgages are both long term instruments. If you itemize deductions on taxes, your mortgage interest is effectively lessened by whatever marginal tax rate you're avoiding (if every dollar of interest saves you $0.25 in taxes, your mortgage interest is effectively 75% of 3.375 = 2.53), so that just tilts the scales even further in your 401k's favor.
demosthenes
Member
Thanks for the feedback. I'm going to go near max for the year, roughly 14,000.
squallheart
Member
Hello I am new to investing. I am planning on leaving my current job (target) and have 401k with them. I've been reading about roth ira and was wondering if it is a smart move to transfer my 401k to an roth ira through vanguard. Any tips would be appreciated, after that not sure what to do. Thank you for your time.
ZackieChan
Member
I think that the 401(k) to IRA rollover is pretty common. AFAIK you can't do it as a Roth, since the money is pre-tax. At least that's what I had done in the past.
SecretMoblin
Member
You can rollover a regular 401(k) into a Roth but you will owe taxes unless it's a Roth 401(k) -> Roth IRA.
If the 401(k) is small-ish and you plan to continue contributing to the Roth, the one-time tax hit is probably worth it even if not ideal.
If the 401(k) is small-ish and you plan to continue contributing to the Roth, the one-time tax hit is probably worth it even if not ideal.
Actually yes you can. I did this and took the tax hit.
ZackieChan
Member
Ahh, ok, thanks for clearing that up. You're also subject to the low contribution limit, correct? Or does a rollover not count toward that?
Rollovers don't count toward the annual contribution.
ZackieChan
Member
Good to know.
Doubt I'll ever work for someone again, but it's good to know.
In other news, I got some money coming in over the next couple weeks and it's all going into my self employed 401(k). Feels good - on track for the semi-retirement at 55.
So I finally saved up some cash, and now its sitting in my savings account so I want to do something with it. I dont make a lot of money now, and besides any unforeseen changes, I will be self employed in the future. Would a Roth be smarter for me right now? I could put my money into one of the vanguard funds. Would the total stock market fund be the best bet right now since I can really only comfortable put my money into one?
ZackieChan
Member
Sounds like you need liquid cash as an emergency fund before you can think about investing that money. How much is it? How long will it last you? How steady is the work that you'll be doing freelance?
dragonyeuw
Member
That's awesome. I bought my house at 24 and I'm hoping to be done by 42 at the latest.( I go 40 in October).
Ill have about a 6 month egg if I invest into one of their funds. My work is steady for my baseline income, I do a little extra side work for some extra money but I try and pretend that doesnt exist.
ZackieChan
Member
Meaning you have 6 months saved, plus whatever you would start investing in?
If you're self employed like me, I think that a Roth IRA and an individual 401(k) are the way to go. I've got both of mine set up through Schwab.
Yup, so Illl have about 6 months after investing.
Also, my gf has a small 401k from her previous job so shes got some money just sitting there. Is it easy to roll that into something else?
Walter White Walker
Member
It really depends. Some people say you should always include some percentage of bonds to cut down on volatility, others say wait until you're close to retirement before you put money in them as they really don't pay much. I have some in bonds but not anywhere near what I'm "supposed to" for my age. It really depends on how much you can handle volatility and your risk tolerance.
Just look at the bond funds that are available to you if you want to invest in one to see what's in them, like at morningstar.com. I have my money in SCHZ which is Schwab's intermediate term bond ETF which has a mix of Treasuries, mostly highly rated corporate bonds, and securitized mortgages. It works for me because it pays decent for "safe" bonds (right now it's yielding 2.31%), its duration is under 6 years, and it only costs .04%.
Hey guys, if I'm saving for a down payment on a home/condo - I'm assuming I should be including a larger percetange of bonds in my portfolio given that I'll need the funds relatively soon (I'm thinking 5-6 years)?
I was leaning towards a 60EQ-40Bond split, wonder if this might be too "safe" though.
I was leaning towards a 60EQ-40Bond split, wonder if this might be too "safe" though.
SecretMoblin
Member
Some links to bond allocation takes are linked right at the top of the OP, and it's worth noting there is (friendly) disagreement about whether or not it's worthwhile to have some money in bonds. There's near-universal agreement that it shouldn't be very high unless you're closing in on retirement, though.
I'm also in SCHZ, and any mutual fund or ETF that's marketed as a "total bond" or "bond aggregate" fund will typically invest in a range of investment-grade taxable debt securities. Any one of the big institutions will have their own; VBTLX/VBMFX (MF) or BND (ETF) at Vanguard, FBIDX/FSITX (MF) or AGG (iShares ETF) at Fidelity, etc.
It really depends on your flexibility.
If you are going to buy a home in 5 years, then you should take a conservative approach because that 5th year might be a stock market crash.
If you have like a 5 year range around your 5 year home buying plan, then you can take a more aggressive approach. If the market crashes in in 5 years, you can just wait it out until in recovers in a year or two or three.
Polishin8r
Member
Anyone have any idea about the Vanguard proxy vote? This is sort of on a tangent apparently the board recommends a for vote on all points?
They recommend voting against one of the shareholder measures, which proposes that the index funds divest themselves of some companies on certain ethical grounds.
Thanks very much, looks like I have some research to do. Right now I have a plan to put $X into a broad index fund each month, which has been working well.
But I also have cash in savings earning basically nothing, which I may move into FSITX since I use Fidelity.
Im just waiting for my money to transfer over to Vanguard at the moment but I have the account open. Whats the best to invest into, I know the total market fund was recommended but some sites are saying to invest in other stuff. Some are recommending the retirement target accounts, they all seem to pick different funds.
A friendly reminder to watch this older John Oliver's episode on retirement plan for those who haven't yet.
https://www.youtube.com/watch?v=gvZSpET11ZY
Really really solid episode!
https://www.youtube.com/watch?v=gvZSpET11ZY
Really really solid episode!
I haven't watched that since it aired, but I remember a lot of it borrowing heavily from Frontline's The Retirement Gamble
http://www.pbs.org/wgbh/frontline/film/retirement-gamble/
I voted against. Which companies were they targeting? They specified genocide as the criteria. We're in trouble if they suddenly remove AAPL from the index because they fund genocide and civil war for raw materials.
Walter White Walker
Member
I've seen a bunch of those and they seem to vary. You can try this one at Fidelity which seems like it at least gives you a ballpark figure (although I'm sure there's a lot of assumptions baked in):
https://www.fidelity.com/products/retirement/widget/xfactor/retire_xfactor.html
Randolph Freelander
Member
If you want to completely set it and forget it, do the target date fund nearest your anticipated retirement.
Otherwise, you can manage your blend yourself by using a combination of their index funds (we commonly recommend their total stock market, total international, and total bond) in percentages that make sense to you. Vanguard typically splits domestic and international at 60/40, with bond allocations gradually cutting into each. If you want more domestic stock than they typically do (or less), or more bonds (or less), then you can manage that with your fund selections.
And you can always just start with a Target date approach and reserve the right to be more active later.
ZackieChan
Member
I use a 4% rule calculator to figure out how soon I can semi-retire and fully retire and have my living expenses taken care of. I'm shooting for semi at 55 and full at 65. My hourly rate should be pretty high by the time I'm 55, so there shouldn't be too much work necessary.
This is what Im gonna do. at this point I just want my foot in the door.
I'm still torn on what percent of my salary to allocate to various types of savings.
I need to save some money for the shorter term. So should I just float that in a savings account or something similar? My current impulse is to put all spare money into retirement savings but that leaves me with nothing liquid. I already have an emergency fund put aside.
What are peoples rules of thumb for allocating money that is spare after bills/expenses each month?
I need to save some money for the shorter term. So should I just float that in a savings account or something similar? My current impulse is to put all spare money into retirement savings but that leaves me with nothing liquid. I already have an emergency fund put aside.
What are peoples rules of thumb for allocating money that is spare after bills/expenses each month?
hockeypuck
Member
Why do you need liquid shorter term money? You already have an emergency account. Are you saving for a house? Then put that money aside in a CD or savings account. You don't need an emergency fund on top of another emergency fund.
I max out all my tax-advantaged space first (401k, Roth IRA, etc).
Whatever I have saved above that, goes into my taxable brokerage account.
No need to worry about percentages. Max out your tax-advantaged accounts, assuming the 401k's mutual funds are decent.
I'm not earning enough to max out all my tax-advantaged stuff but I do try to make use of as much as possible.
I'm just concerned I'm putting too many eggs in the long-term basket of the stock market. If I decide I need a new couch or something fairly pricey, it's not an emergency as such, but I wouldn't have that much money on hand.. would you then wait a few months or dip into the emergency fund? Or liquidize some investments?
My wife and I have our money structured thus:
- About one month's income in savings at the credit union. This is for spontaneous or very short term things; we dip into it a few times a year.
- A savings fund in the form of index funds in a regular brokerage account. We contributed a little bit each month until it hit a total we were comfortable with and called it good. It's for medium to long term large expenses. We paid for half a car out of it a couple years back, and will use it to put a new roof over the house in a few more hence.
- 529 for the kids.
- Retirement.
Not saying this is what you should do, but I thought I'd present it as a possible model, one that has worked well for us.
Glitchesarecool
Member
I have maybe about $5k to my name in terms of what I could freely give up, is there even any point in investing with that or should I just assume that I'm not going to have a chance and the future is bleak?
If you just invest that 5k and earn 7% interest on it for the next 40 years, then that 5k will turn into 75k.
So yes, it is definitely worth it thanks to the magic of compound interest.
This is the sort of thing I was looking for, thanks for sharing.
Currently trying to figure out if it makes more sense for me to up my salary sacrifice through work or if I should keep it how things are and invest myself. On the one hand, I'd be investing more but on the other, the fees start at 0.65% in the company funds vs 0.08% in my own options.
Tyraniboah
Member
Looking for some general advice on investments. Aside from my mortgage, I have some debt in student loans, a couple Grand in credit card debt, and random little things here and there that I'm working to pay off. Should I continue to just work on the debt or should I start investing? I'm 28 and my wife and I bought a house two years ago. And if the recommendation is to invest, what would your approach be? I have a 401k that's near $3000 right now and growing, so that's something. Thanks for the input!
Randolph Freelander
Member
If your 401K has an employer match, invest in that and get as much as the max you can get. Then focus on eliminating your credit card debt, as it's higher interest than what the market returns.
If there is no employer match, then your credit card debt becomes your higher priority, and start investing as soon as that's gone. (If you have any other high interest debt, it's higher priority than investing. Less than 5% is territory for preferring investing, 6-7% is borderline, 8+ is in the neighborhood of paying down the debt first. Historical market returns are 10%, but not a guarantee, so certainly any debt above that, pay it off ASAP... though not before you get an employer match on your 401K).
The common advice is:
- If you get a 401k match, contribute enough to get the full match. Otherwise, skip to step 2.
- If you have extra left over, contribute that to your IRA, with the better, lower cost options.
- If you max your IRA, circle back and top off the 401k.
isaacnukem
Member
Investing money seems like luck-based to me. Or I'm just uninformed. Probably the latter.
Even saving money in a bank has a luck component because the purchasing power of the dollar could plummet or the government could disband. Index investing has higher risk than saving but much higher potential reward, but also much lower risk than speculation.