Retirement

[Zeno]

Retirement for me seems like a long way off, 20 yrs and a couple of months(I'll be just over 57) but I am trying to plan ahead. Luckily my work offers a pension...a convuluted formula of 3 highest earned years X a percent and X years of service so thats ok..not great money but not bad either. They also have a 401K(we call it Thrift Savings Plan--we can contribute 15%--I contribute 10%, they match the first 5%) but I just saw an article in Time magazine saying 401K's should go away for the benefit of the employees. Not sure what to think about that to be honest, my wife and I did lose a lot in the past few years but we hope the market bounces back eventually. I also have a money market Roth IRA but its only a year old and I max that out ($5000). Then I buy $300 of Savings Bonds every month...guaranteed not to lose money but it doesn't make a whole lot either(for instance a $50 bond I bought over 5 years ago has only made $12.12 so far).

I don't feel like I can count on Social Security as an option so I don't even include that in any retirement calculators I look at.

What does everyone else do? Any ideas of ways to better invest for the future? The first thing I'd change is the Savings Bonds, if I could invest that $300 a month in to something better I would...I've never really done any self investing, whether it be stocks or mutual funds or whatever so I am a little reluctant.

When I retire I want to be sure I don't have to worry about much.

 

[82CardsGrad]

Most people who claim that 401K's should "go away" say so because they see so many employees dump that money into their own company stock within the 401K.
It's been my experience that if you invest prudently within a 401K, meaning you diversify as much as practical, it's a great way to save. Your company match is a very nice, healthy match and it's hard to argue with getting free money at that level (5% of your own contributions is sweet).

I would definitely get out of the savings bond game! You're way too young to be sticking $3,600 into something that only nets you a 2% return!
Not sure if you have any kids Zeno? If you don't, and don't plan to, it sure looks to me like you are well on your way to creating a very comfy retirement life. Between your 401K and company Pension Plan alone, I'd say you should be very well positioned... But you've added a Roth and are still able to dump another $300 a month into bonds (I'd move out of that vehicle asap). Very nice indeed...

 

[Zeno]

Most people who claim that 401K's should "go away" say so because they see so many employees dump that money into their own company stock within the 401K.
It's been my experience that if you invest prudently within a 401K, meaning you diversify as much as practical, it's a great way to save. Your company match is a very nice, healthy match and it's hard to argue with getting free money at that level (5% of your own contributions is sweet).

I would definitely get out of the savings bond game! You're way too young to be sticking $3,600 into something that only nets you a 2% return!
Not sure if you have any kids Zeno? If you don't, and don't plan to, it sure looks to me like you are well on your way to creating a very comfy retirement life. Between your 401K and company Pension Plan alone, I'd say you should be very well positioned... But you've added a Roth and are still able to dump another $300 a month into bonds (I'd move out of that vehicle asap). Very nice indeed...

Thanks, makes me feel better. My wife is in a similar retirement plan too...she doesn't make quite as much but she has a year in service on me and more invested in her 401K but she doesn't sitck as much in her Roth.

No, no kids and no plans to have any.

Still looking at other options for my bond money...I knew it wasn't the best way to make money but I wanted to do something with my money rather than let it sit.

Thanks again.

 

[nathan]

Small correction. With your TSP you're allowed to contribute $16,500 annually not just 15%.

I agree with 82 about the bonds. EE bonds are pulling down less than 1% and I bonds are pulling down 0% with the variable rate going negative due to deflation.

With FERS and your TSP you should be doing quite well when you retire.

 

[Zeno]

With FERS and your TSP you should be doing quite well when you retire.

They changed our retirement system last year. So I have 12 yr creditable with FERS under the old system (1% I think) and when I retire will have 21 yrs creditable under the new law enforcement system (1.7%)--its still FERS though just a different designation.

We got good news recently that our journeyman level was increased from GS-11 to GS-12, thats about a $6K annual raise for me. This will help with both TSP and Retirement (my high 3) and I am sure before I retire I will occupy a positon at a greater pay grade.

I have been trying to do some research on where to stick that bond money, would opening a traditional IRA make sense? I can have both a Roth and a traditional IRA right?

I am lucky in that my job is secure in this economy and that I live in TN, where its relatively cheap to live with no state income tax.

 

[Russ Smith]

They changed our retirement system last year. So I have 12 yr creditable with FERS under the old system (1% I think) and when I retire will have 21 yrs creditable under the new law enforcement system (1.7%)--its still FERS though just a different designation.

We got good news recently that our journeyman level was increased from GS-11 to GS-12, thats about a $6K annual raise for me. This will help with both TSP and Retirement (my high 3) and I am sure before I retire I will occupy a positon at a greater pay grade.

I have been trying to do some research on where to stick that bond money, would opening a traditional IRA make sense? I can have both a Roth and a traditional IRA right?

I am lucky in that my job is secure in this economy and that I live in TN, where its relatively cheap to live with no state income tax.

You can have multiple IRA's. When I got laid off after being acquired I couldn't keep my 401k because the company was bought out and closed the 401k. So I rolled it into an IRA, but I couldnt' combine it with my existing IRA so now I have 2. I'm debating rolling one into a Roth.

I have about 25% of one IRA in a money market and the rest in varying degrees of stock risks. My other IRA is in one of those Fidelity Targeted retirement funds, you tell them what year you figure you'll retire and they pick the best balance of funds. So far the percentages are fairly close.

Of course there's always more risk with stocks but over the long haul short of real estate it's been the best way to get good returns and of course real estate is an even bigger risk right now.

Sounds like you've got a great head start on it though and as long as you have matching 401K you should always take advantage of the free money as you are.

No state income tax is another big advantage you definitely seem to be in a very nice situation to build for retirement.

 

[CaptTurbo]

Dump the bonds, buy CD's.

Count on SS, youll be the last generation to get it.

 

[DWKB]

No, 401k plans are not proving to be the end all be all, but they are our best options right now.

The time magazine article touched on many things, those who invested too much into their company stock was one of them, but also the increasingly exposed risk to market fluctuations as you go on later in life when you're not contributing.

 

[Zeno]

Dump the bonds, buy CD's.

Count on SS, youll be the last generation to get it.

CDs don't pay crap...like 2%, thats barely better than the bonds. I'd like to find something better than that.

Anyone have any annuities? Or have any experience with them?

I'm even considering purchasing land as a long term investment, I just have to find the right place to buy it.

I'll be shocked if I get social security, if it happens it'll just be a bonus because as I plan ahead it is not something I count on.

 

[Matt L]

You can have multiple IRA's. When I got laid off after being acquired I couldn't keep my 401k because the company was bought out and closed the 401k. So I rolled it into an IRA, but I couldnt' combine it with my existing IRA so now I have 2. I'm debating rolling one into a Roth.

I have about 25% of one IRA in a money market and the rest in varying degrees of stock risks. My other IRA is in one of those Fidelity Targeted retirement funds, you tell them what year you figure you'll retire and they pick the best balance of funds. So far the percentages are fairly close.

Of course there's always more risk with stocks but over the long haul short of real estate it's been the best way to get good returns and of course real estate is an even bigger risk right now.

Sounds like you've got a great head start on it though and as long as you have matching 401K you should always take advantage of the free money as you are.

No state income tax is another big advantage you definitely seem to be in a very nice situation to build for retirement.

Moving from a traditional IRA to a Roth is not the same as a rollover. You will likely have to "convert" the funds and this a taxable event.

 

[82CardsGrad]

CDs don't pay crap...like 2%, thats barely better than the bonds. I'd like to find something better than that.

Anyone have any annuities? Or have any experience with them?

I'm even considering purchasing land as a long term investment, I just have to find the right place to buy it.

I'll be shocked if I get social security, if it happens it'll just be a bonus because as I plan ahead it is not something I count on.

Zeno, you're young enough and are extremely diversified with respect to your retirement savings programs, such that you absolutely should use the $$ you are currently placing into the bonds and seek higher returns - albeit with the associated higher risks.
Annuities are a vehicle you should seriously consider. Anytime you can sock away a portion of your retirement savings into something that can guarantee you a return of 5% or greater, you should jump on it. Again, particularly since you are well situated with the other forms of savings available to you...
Here's one that I know of from Prudential Financial, however I know that MassMutual and other insurance companies offer similar annuity products:

http://www.prudential.com/media/managed/documents/pruannuities_investor/dams_3601.pdf?siteID=25

 

[Zeno]

Zeno, you're young enough and are extremely diversified with respect to your retirement savings programs, such that you absolutely should use the $$ you are currently placing into the bonds and seek higher returns - albeit with the associated higher risks.
Annuities are a vehicle you should seriously consider. Anytime you can sock away a portion of your retirement savings into something that can guarantee you a return of 5% or greater, you should jump on it. Again, particularly since you are well situated with the other forms of savings available to you...
Here's one that I know of from Prudential Financial, however I know that MassMutual and other insurance companies offer similar annuity products:

http://www.prudential.com/media/managed/documents/pruannuities_investor/dams_3601.pdf?siteID=25

Thanks a lot, I appreciate that info, the little I know of annuities I've read on money.cnn.com and some other site, that prudential document really spells it out well for me. Looks like it worthwhile and if I read it correctly I can make additional deposits in the future (like when my Bonds each reach 5 yrs old and I can cash them in without penalty, I only have like 15 that are "of age" currently).

 

[jefftheshark]

Have you considered some kind of hedge against inflation (as you are aware, your gains from either CDs, annuities, and non-inflation accounted bonds could be wiped out if the government keeps the printing presses in overdrive)?

There are precious metals ETFs, TIPS, and even some companies that will allow you to hold physical gold (in their safe) within an IRA or 401k.

JTS

 

[Zeno]

There are precious metals ETFs, TIPS, and even some companies that will allow you to hold physical gold (in their safe) within an IRA or 401k.

JTS

ETF & TIPS? Sigh, yet another thing I have to look up, I honestly have no idea what those are. I'm a total novice.

I appreciate everyones advice...I plan to be prepared and really want to start now while I have 20 yrs to save & invest, my wife will be a contributor too, she is also a Federal Employee, between our 2 pensions, TSP's & IRA's we should be ok, but I want to be more than just OK. We want to enjoy our retirement and not worry about finances if we can help it.

 

[Russ Smith]

Moving from a traditional IRA to a Roth is not the same as a rollover. You will likely have to "convert" the funds and this a taxable event.

Yeah there's several online calculators that tell whether it's a good idea or not to do this. If I did it I would make sure the conversion was for 2010 taxes. I'm still not convinced it's actually the right move for me, some of the calculators tell me it's not, some say it is. I actually intend to ask Fidelity more about that.

But that is a good point to make, even in my situation I could not have rolled it into a Roth tax free, it would have to have been converted and taxed at that time.

 

[jefftheshark]

ETF & TIPS? Sigh, yet another thing I have to look up, I honestly have no idea what those are. I'm a total novice.

ETF = Exchange Traded Fund: A collection of stocks, bonds or other financial instuments that act like a mutual fund, but trade like a stock.

TIPS = Treasury Inflation-Protected Securties: A type of Treasury Bill, TIPS provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.

Saved ya the time of looking 'em up.

JTS

 

[82CardsGrad]

ETF = Exchange Traded Fund: A collection of stocks, bonds or other financial instuments that act like a mutual fund, but trade like a stock.

TIPS = Treasury Inflation-Protected Securties: A type of Treasury Bill, TIPS provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.

Saved ya the time of looking 'em up.

JTS

Jeff, do you really see inflation as a risk over the short term?? Aside from Oil, it's hard for me to see why or how inflation would become an issue anytime soon. Consumers remain tapped out and in MAJOR deleveraging mode. I just don't see it...

 

[jefftheshark]

Jeff, do you really see inflation as a risk over the short term?? Aside from Oil, it's hard for me to see why or how inflation would become an issue anytime soon. Consumers remain tapped out and in MAJOR deleveraging mode. I just don't see it...

Over the short term? No; like you and many others I see that the hugely inflationary printing of money is currently being offset by the downward pull of deflation. So we're basically treading water here, with inflation in commodities, but nothing much else (and certainly not in anything that requires credit to purchase).

But if the question is retirement planning, then I think that this a huge consideration. At some time the current situation is going to give way, and I would be looking at inflation as being the next wave of the cycle, and have a hard time seeing the future as a never-ending cycle of prices going down.

And that's why I like gold and silver right now, because the weak dollar only helps them go up, as does any scent of inflation. The only downside risk is if we see a plummeting of value like we did last November where every asset class took a nose-dive. But if this should happen again, we're close to a scenario where you would want physical ownership of PMs anyway, so they're even good to own in that situation, too.

JTS

 

[DWKB]

Two things:

1) Nothing is a guaranteed rising product and this includes precious metals. There are more people every day who are claiming Gold is becoming a bubble at $1000 an ounce countering those who are claiming Gold will double in value again in the future. Gold does not pay dividends either.

2) From a recent Business Insider blurb:

Nevertheless, there are drawbacks related to physical gold ETFs.

Primarily, the Internal Revenue Service treats physical gold as a collectible, thus may subject it to a higher tax rate on gains than other types of investment such as futures-based ETFs.

Physical gold ETFs also represent a decreasing amount of metal per share over time due to funds selling portions of their investors' gold to cover expenses. Technically, one day each share could own almost nothing.

 

[82CardsGrad]

Over the short term? No; like you and many others I see that the hugely inflationary printing of money is currently being offset by the downward pull of deflation. So we're basically treading water here, with inflation in commodities, but nothing much else (and certainly not in anything that requires credit to purchase).

But if the question is retirement planning, then I think that this a huge consideration. At some time the current situation is going to give way, and I would be looking at inflation as being the next wave of the cycle, and have a hard time seeing the future as a never-ending cycle of prices going down.

And that's why I like gold and silver right now, because the weak dollar only helps them go up, as does any scent of inflation. The only downside risk is if we see a plummeting of value like we did last November where every asset class took a nose-dive. But if this should happen again, we're close to a scenario where you would want physical ownership of PMs anyway, so they're even good to own in that situation, too.

JTS

I dunno... I jsut can't get on board with buying Gold at more than $1,000 an ounce. I could be wrong - certainly would not be a first! But it's hard for me to see the U.S. Dollar going that much lower than where we are today, and therefore buying Gold at these levels as a solid investment. If it were me, I would take the guaranteed returns of an annuity over buying gold at these prices... seems like a no-brainer to me.

 

[RonF]

I've been retired now for 12 years and there is one suggestion I have that I think applies to everyone. Dave Ramsey on the FOX business channel will tell you, to live like nobody else so that when you retire, you can live like nobody else. And he's right.

Make sure that when you retire, whatever the age, your home is paid off, you don't want to have a mortgage. Those of you who have extra income, now, and uncertain where to invest it, use it to pay down the mortgage principal in your property.

For example, if you have a 30 year mortgage and make one extra mortgage payment on the principal each year, you will pay off your mortgage in less than 20 years. Imagine, 10 years or more with no mortgage payments.

I've lost much of my 401K, IRA's and stock market investments over my working lifetime because of market crashes beyond my control. However, my one saving grace is that my home is paid off. I have a small pension and my wife and I have our SS and we live quite comfortably here in Sun City. The fact that we own our home outright was the key. You can overcome all kinds of money issues if you fully own your own home.

 

[82CardsGrad]

I've been retired now for 12 years and there is one suggestion I have that I think applies to everyone. Dave Ramsey on the FOX business channel will tell you, to live like nobody else so that when you retire, you can live like nobody else. And he's right.

Make sure that when you retire, whatever the age, your home is paid off, you don't want to have a mortgage. Those of you who have extra income, now, and uncertain where to invest it, use it to pay down the mortgage principal in your property.

For example, if you have a 30 year mortgage and make one extra mortgage payment on the principal each year, you will pay off your mortgage in less than 20 years. Imagine, 10 years or more with no mortgage payments.

I've lost much of my 401K, IRA's and stock market investments over my working lifetime because of market crashes beyond my control. However, my one saving grace is that my home is paid off. I have a small pension and my wife and I have our SS and we live quite comfortably here in Sun City. The fact that we own our home outright was the key. You can overcome all kinds of money issues if you fully own your own home.

Sage advice for sure...

 

[jefftheshark]

Two things:

1) Nothing is a guaranteed rising product and this includes precious metals. There are more people every day who are claiming Gold is becoming a bubble at $1000 an ounce countering those who are claiming Gold will double in value again in the future. Gold does not pay dividends either.

2) From a recent Business Insider blurb:

Both good points; and if I sounded like GLD was a guaranteed winner, then I was off-base, as truly nothing ever is.

But that being said, the future tax implications of any asset are subject to the whims of both Congress and the IRS. Anyone who has owned real estate can verify this. At a certain point, you have to go with the current flow, and be nimble enough to change your strategy when the situation demands.

And there is true decay to any ETF, or mutual fund for that matter. When your doing your DD you have to take this into account before you decide where to invest. If the potential gains do not offset the costs of the investment vehicle, then it's probably not a very good investment.

As far as gold goes, I read this the other day: Suppose you read that someone discovered a machine that could turn sand into gold, and starting next week this person was going to start producing a basically unlimited supply of the metal. What would happen to the value of gold in this situation? Well of course, in this situation, gold would lose any usefulness as a storehouse for value. But look at what the US Treasury is doing with the dollar right now. They have the very same magic machine imagined above, that can print an unlimited amount of dollars whenever the mood strikes them. It is for this reason that finite gold is a superior method of storing value than a potentially infinite supply of currency.

I'm not a true "gold bug" but there are very sound reasons to think that a certain percentage of one's "cash" should be held in some kind of physical commodity, be it gold, silver, or what have you, so that you can be hedged against the capriciousness of our government's printing presses.

JTS

 

[jefftheshark]

I dunno... I jsut can't get on board with buying Gold at more than $1,000 an ounce. I could be wrong - certainly would not be a first! But it's hard for me to see the U.S. Dollar going that much lower than where we are today, and therefore buying Gold at these levels as a solid investment. If it were me, I would take the guaranteed returns of an annuity over buying gold at these prices... seems like a no-brainer to me.

Owning gold is like a referendum on where you think we are headed. During times of uncertainty and crisis, gold is a great investment.

During good times, not so much.

So $1000 an ounce is just relative. If it were priced in 1980 dollars, it would be half the price it is today. If you had filled your safety deposit box in 1980 with equal value amounts of both cash and gold, which one of the two would you be happier to own today?

JTS

 

[DWKB]

Owning gold is like a referendum on where you think we are headed. During times of uncertainty and crisis, gold is a great investment.

During good times, not so much.

So $1000 an ounce is just relative. If it were priced in 1980 dollars, it would be half the price it is today. If you had filled your safety deposit box in 1980 with equal value amounts of both cash and gold, which one of the two would you be happier to own today?

JTS

Was 1980 a random choice? If you had filled your safety deposit box in 1980 with gold and emptied it in 1990, or worse yet 2000, you'd have felt some serious pain.

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