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Retirement with 401k

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SODAKer
One of the things that keep some folks from contributing to company plans is really crappy plans with expensive fund choices etc.. which today really doesn't make sense when solid options are available. However one still needs to save one way or the other whether it be to get co. match, Roth or through taxable. Also I'm in the camp with saving for your retirement first and worry about the edu fund later. Edu $ is available one way or the other, I don't know of any plan that says upon retirement, "you've been a good parent, person, etc.. here is your million dollar retirement fund that we funded for you.....

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bennelli-banger
I am a Certified Financial Planner, been doing this for 25 years...I crunched a few scenarios....if you can earn an average of 6% annually on your retirement portfolio, putting away $1,000/month for 30 years gets you to $1,000,000....if you can average 10% you only need to put away about $450/month.  If you look at many equity funds that have been around for 20, 30, 50 or more years, they commonly get to that 10% average return...when the downturns occur, keep your seat belt on and put the pedal to the metal!  Buy, buy, buy!  Or, just keep doing what you have been doing...just keep socking it away via your 401k, 403b, IRA, or whatever you have at your disposal.  If you get close to needing the money, as in a lump-sum need, like college, or a house, etc., gradually pull out leading up to that event, but retirement should be viewed as a multi-decade event and getting overly conservative  all at once may be a mistake...that is what I have seen.  Keep a year or two of your annual expenses in savings, have an equal amount in CD's or high quality bonds--corporate, government, or municipal, depending on your tax bracket and if the $ is in or out of a retirement account,  then spread the rest across equities...domestic, foreign, small, mid, and large cap...(the wilshire 5000 "total market index" replicates our US market...about 70% large, 20% mid, and 10% small cap)...I like keeping about 75% domestic, the balance foreign, including emerging markets to some degree...bottom line, most 401k's offer "target date" funds, and I like them...they do for you what I am describing...pick a fund that corresponds with your estimated year of retirement and they take care of the rest for you...lock, stock, and barrel...sign up, stick with it, ignore the drama of CNBC, keep upping your % as you can, and go hunting as much as you can!!!!

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SODAKer

I am a Certified Financial Planner, been doing this for 25 years...I crunched a few scenarios....if you can earn an average of 6% annually on your retirement portfolio, putting away $1,000/month for 30 years gets you to $1,000,000....if you can average 10% you only need to put away about $450/month.  If you look at many equity funds that have been around for 20, 30, 50 or more years, they commonly get to that 10% average return...when the downturns occur, keep your seat belt on and put the pedal to the metal!  Buy, buy, buy!  Or, just keep doing what you have been doing...just keep socking it away via your 401k, 403b, IRA, or whatever you have at your disposal.  If you get close to needing the money, as in a lump-sum need, like college, or a house, etc., gradually pull out leading up to that event, but retirement should be viewed as a multi-decade event and getting overly conservative  all at once may be a mistake...that is what I have seen.  Keep a year or two of your annual expenses in savings, have an equal amount in CD's or high quality bonds--corporate, government, or municipal, depending on your tax bracket and if the $ is in or out of a retirement account,  then spread the rest across equities...domestic, foreign, small, mid, and large cap...(the wilshire 5000 "total market index" replicates our US market...about 70% large, 20% mid, and 10% small cap)...I like keeping about 75% domestic, the balance foreign, including emerging markets to some degree...bottom line, most 401k's offer "target date" funds, and I like them...they do for you what I am describing...pick a fund that corresponds with your estimated year of retirement and they take care of the rest for you...lock, stock, and barrel...sign up, stick with it, ignore the drama of CNBC, keep upping your % as you can, and go hunting as much as you can!!!!

Good post.

If one wants a little excitement, then be disciplined with some strategic slice and dice. That even becomes boring once you get it set but it is effective with little effort.  

Gotta be in it for the long run.

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fuess
To be safe, you really need closer to 15 to 20 x income.  This assures no consuption of principle and no worries of outliving income.

Life expectancy, while unknown, is definately a major risk factor in financial success.

LOOK AROUND, HOW MANY PEOPLE DO YOU KNOW WHO ARE 70, 80, AND OR EVEN 90??

You will be surprised how may you know.  It especially challenging when the Fed is fighting against you while artificially keeping the fixed income market deflated.

fuess,

Does this include real estate investments or is this hard cash in retirement accounts and does it assume you will have the same debt at 60 as you do at say 40 and 50?

Too many focus on the lump sum.  I focus on the income the lump generates.  So I dont care what the asset is just the income it produces.

You dont spend a lump sum you spend the income it produces.

So the my rule of thumb for 15/20 assumes a 5% yield on the lump sum to produce desired income.

Example.  1000000 portfolio at 5% yields 50k/yr.

Remember biggest risk in retirement planning is a long life and inflation.

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bennelli-banger
Yes, the income stream is the thing that matters...but, before I can buy that piece of real estate, that annuity, that business, that bond portfolio, that dividend paying stock portfolio, I need the lump sum...at least that has been my experience.  I have been tracking my mom's portfolio for the past 7 seven years (only because I started with a lump sum of cash of around $425,000)...she has taken $217,000 of income, and today it is worth around $445,000...she owns MLP's that yield around 7%, preferred stocks that yield around 6%,  a few CD's from 4-5 years ago that still have OK rates, a junk bond fund yielding around 6%, some utilities that yield between 4-5%, and about 25% of her total is spread across about 8-9 equity funds that cover most of the equity sectors/styles that exist.  So, mostly income-oriented stuff, with the exception of the 25% in equities, which we still draw 5% annually from.  I have another client who is a retired CPA who tracks this stuff religiously...he rolled over about 400k in 1992...he has taken well over that in income since then...closer to 500k...and his account is worth over 800k, more like 820k today...the big factor there is the rates we locked in at back in '92 with a lot of the cash...bonds at 7%, give or take, and some equities, but not a lot...maybe 20%...he still holds a lot of preferred stocks, some cd's, some corporate bonds, some MLP's, and about 25% is in equity funds...bottom line, he has resisted the temptation to bail out, or, go all gold, etc, etc...time has been a big factor, too...ignoring the hype, though he gets caught up in it like we all do at times...a few ETF's that you can buy  that are fairly low-cost, fairly well diversified, and pay some decent dividends are: PFF (preferred stocks), AMLP (master limited partnerships in the pipeline sector), JNK (high-yield junk bonds), XLU (utilities), IYR (reits), BABS (taxable muni bonds of high-quality), DVY (decent yielding stocks)...these are all susceptible to dropping in value when interest rates rise...or dropping in value if other things happen, like the economy tanks, etc....buying an equal amount of those probably  gets you to a yield of around 5%...oh, look at EOI, EOS, ETJ, NFJ, ETV, ETW, ETB...these buy stocks and sell calls against them...they all probably average around 8-10% in dividend yield...bottom line, they are selling the future appreciation potential of the stocks they own in exchange for upfront cash, or "premium"...mom has a few of these as well...not a panacea, they are "closed-end" funds, and have more volatility than traditional mutual funds or ETF's...again, caveat emptor, they all involve risk, but they all are fairly diversified portfolio's  of securities so you are not putting all eggs in one basket...I don't use them much but I like the concept of convertible bond/securities funds, but they have gotten a fair bit pricey, like a lot of things have...not many bargains out there at this time...

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bennelli-banger
at one point, on some forum like this, I responded similarly and was accused of trolling for biz...believe me, that is not the case...just opining on matters being discussed....much like what kind of boots, guns, shells, hunting spots, etc, we kick around routinely...last thing I would say, again, is when we leave the surety and safety of short-term cd's, we enter a realm of risk...then again, leaving too much $ in things like short-term cd's, we subject our $ to loss of purchasing power, another type of risk...

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trust me
...then again, leaving too much $ in things like short-term cd's, we subject our $ to loss of purchasing power, another type of risk...

Going broke safely, I call it.

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sneem
This thread has been interesting. Maybe we need a new forum. Investing in something other than guns or some such.

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Chukarchaser
In the words of Slaid Cleaves "If it weren't for horses and divorces I'd be a lot better off today!"

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mshowman

I don't know nearly enough to even begin giving investment advise but I can offer a general peek at how retirement savings have worked for me.

When I was 30 I first became eligible to participate in my employer's retirement program which, at that time, consisted solely of guaranteed annuities and mutual funds. It was tough taking the 5% minimum from my check (which my employer matched) but my wife and I scraped by and did it. When I received inflation raises each year I increased the amount of my contribution until I reached 10% (the maximum my employer would match). Even after I received some promotions and pay increases I continued at 10% and put any extra money into paying off debt. About 12 years ago I became debt free. At that point I began investing in SRAs, Roths, bonds, and more annuities, and continued on that track right up to the present.

33 years have passed since I signed up for that initial payroll deduction. I still don't make a ton of money (that's typically the case with managers/1st line supervisors who work in a university maintenance departments) but I've never touched a dime of my retirement investments. Recently I calculated what it cost us to live per year (based on the past 3 years), factored in social security as shown on their online charts, and allowed for 6% return on my investments, which is less than they have returned over the years I invested. Even if we keep both houses, the numbers show that I should have $24K more at the end of the first year of retirement than when that year started. I will actually be able to maintain or increase my level of spending without reducing the amount of money in the retirement funds.

Something to keep in mind is that my financial plan didn't look very promising for the first 5, 10 or even 20 years. For a long time it seemed like I was destined to work until I died. It wasn't until I became debt free that things really started looking up. Then, after the rebound from the recent mega-recession, the numbers exploded. The advise that has been given by others - to invest for the long term and ride out the economic lows - is much of what put me in the position that I could retire today if I chose.

My plan was simple: I started as early as I could, paid off debt as soon as possible, never panicked and bailed, and never touched my investments. Oh, and I've never been divorced or paid more than $2K for a shotgun!

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trust me
I calculated what it cost us to live per year (based on the past 3 years), factored in social security as shown on their online charts, and allowed for 6% return on my investments,

Something to keep in mind is that my financial plan didn't look very promising for the first 5, 10 or even 20 years.

You've found out over time that 6% earnings on a little is a little, but 6% earnings on a lot, is quite a lot.

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dogrunner
Don't look now market is getting hammered.

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bennelli-banger
we haven't had many down days since this time in 2011...the govt was in a cash crunch, as I recall...that may have been when the bond ratings agencies downgraded US Treasuries for the first time ever...and what happened, besides the stock market dropping about 20%?  Treasuries rallied and began a big up move...after being downgraded!  Typical "flight to quality", I guess ... seeing equities drop today, even 2%, is LONG overdue...I have been perplexed that the market has been so sanguine and complacent for most of 2014, after a 30% + return last year.  A 5%, 10%, even 15% drop is fairly normal every year or two...do like Warren Buffet...make your shopping list and wait til they go on sale!

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northern_hunting_mom

My father had bought a $50k annuity a year before he died. On one page, it said that any amount left will be transferred to a spouse/designated person. On another page, it said it was a single life annuity. The government appointed executor of his assets after his death told Mom that she won't get a penny, when there hadn't been a single payment made out on it yet.

Make sure anyone you care about will still have any retirement savings/payments etc if you die. Make sure there is a will or a government appointed executor will be in charge of your estate. Use a financial planner but a good plan to doublecheck any paperwork before you sign anything. Some companies are crooks and some just make mistakes that can cause disaster.

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settem

My father had bought a $50k annuity a year before he died. On one page, it said that any amount left will be transferred to a spouse/designated person. On another page, it said it was a single life annuity. The government appointed executor of his assets after his death told Mom that she won't get a penny, when there hadn't been a single payment made out on it yet.

Make sure anyone you care about will still have any retirement savings/payments etc if you die. Make sure there is a will or a government appointed executor will be in charge of your estate. Use a financial planner but a good plan to doublecheck any paperwork before you sign anything. Some companies are crooks and some just make mistakes that can cause disaster.

I would certainly be looking for a second opinion on the transfer of funds. One thing I have learned dealing with my Fathers estate is that most of the people you talk to on the first call really do not have a clue. More that once I have been told one thing only to have it go another way when I started asking for more explanation...

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