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Retirement Planning Beginner

Established Contributor

Re: Retirement Planning Beginner


wrote:

To give some more insight my main goal right now BEFORE going all in is to pay off my credit card debt. Currently have about $14K in card debt and want that gone. My income is $90K a year and I remember reading somewhere that if you expect to be making less at retirement than to stick to a standard 401K. Not that I'm a master, thats obviously why I'm asking questions lol. I did confirm this morning that my employeer driven 401K does not have any type of Match program. They do stick a percentage of profit every year in there but I would much rather have a match program. Still as morningstar has managed to grow 5% average in the first quarter that I've used them. That isn't awful right? I hate that couldn't make contribuations without going through a paystub which is why I'm trying to decide what a second avenue might be for a place to put extra money. Thank you for all your help. I currently am half way done with my first readthrough of If you Can.


Depending on the company and the terms, a percentage of profits may be better than a match.

 

In the long run, 5% is neither horrible nor great. 30 years ago, it would have been horrible given that you could earn 5% just shoving cash in a savings account back then. In 2017-2018 so far, it's also horrible as the stock market has been on a bit of a crazy bull run (by way of comparison, the S&P value growth in the last 12 months has been closer to 25%). That said, the market is consistently inconsistent so to expect that level of growth next year or the year after that isn't realistic. 7% is a more reasonable benchmark to aim for in the long run with 10% being a great year.

 

Be mindful of fees on your investments as well - those can drain your gains considerably over the years. My personal rule is to avoid anything over 0.5% unless it has something in it I really, really find worth the cost, with a preferred fund being under 0.1%. I do have some money in one fund that's about 0.4% in fees, but all of my other ETFs and non-individual-stock funds have fees between 0.03% and 0.11%.

Message 11 of 42
Contributor

Re: Retirement Planning Beginner


@wrote:

wrote:

To give some more insight my main goal right now BEFORE going all in is to pay off my credit card debt. Currently have about $14K in card debt and want that gone. My income is $90K a year and I remember reading somewhere that if you expect to be making less at retirement than to stick to a standard 401K. Not that I'm a master, thats obviously why I'm asking questions lol. I did confirm this morning that my employeer driven 401K does not have any type of Match program. They do stick a percentage of profit every year in there but I would much rather have a match program. Still as morningstar has managed to grow 5% average in the first quarter that I've used them. That isn't awful right? I hate that couldn't make contribuations without going through a paystub which is why I'm trying to decide what a second avenue might be for a place to put extra money. Thank you for all your help. I currently am half way done with my first readthrough of If you Can.


Depending on the company and the terms, a percentage of profits may be better than a match.

 

In the long run, 5% is neither horrible nor great. 30 years ago, it would have been horrible given that you could earn 5% just shoving cash in a savings account back then. In 2017-2018 so far, it's also horrible as the stock market has been on a bit of a crazy bull run (by way of comparison, the S&P value growth in the last 12 months has been closer to 25%). That said, the market is consistently inconsistent so to expect that level of growth next year or the year after that isn't realistic. 7% is a more reasonable benchmark to aim for in the long run with 10% being a great year.

 

Be mindful of fees on your investments as well - those can drain your gains considerably over the years. My personal rule is to avoid anything over 0.5% unless it has something in it I really, really find worth the cost, with a preferred fund being under 0.1%. I do have some money in one fund that's about 0.4% in fees, but all of my other ETFs and non-individual-stock funds have fees between 0.03% and 0.11%.


Morningstar charges .25% in fees. As far as the profit sharing goes the owner doesn't advertise what that is and I see typically $1300-1600 per year put in so that won't get me to my goal in the long run.  I'll have to do my own investment other than just the 401K I feel like. 

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Message 12 of 42
Established Contributor

Re: Retirement Planning Beginner


@wrote:


Morningstar charges .25% in fees. As far as the profit sharing goes the owner doesn't advertise what that is and I see typically $1300-1600 per year put in so that won't get me to my goal in the long run.  I'll have to do my own investment other than just the 401K I feel like. 


Money compounds over time as stocks grow and dividends are reinvested. $1500 a year in employer matching over 10 years can grow to to $100,000 or more over 30 years. It's obviously not going to be enough on it's own, but it's certainly a contributor that shouldn't be ignored. More importantly, that $100,000 didn't cost you a cent to get, which is why it's prioritized. It's literally free money.

Message 13 of 42
Frequent Contributor

Re: Retirement Planning Beginner


@wrote: 

In the long run, 5% is neither horrible nor great. 30 years ago, it would have been horrible given that you could earn 5% just shoving cash in a savings account back then. 

 


5% in a quarter is quite good. I think you read it as 5% in a year.

Message 14 of 42
Established Contributor

Re: Retirement Planning Beginner


@wrote:

wrote: 

In the long run, 5% is neither horrible nor great. 30 years ago, it would have been horrible given that you could earn 5% just shoving cash in a savings account back then. 

 


5% in a quarter is quite good. I think you read it as 5% in a year.


Yes, that would be correct. I'm used to looking at everything in terms of annual, not quarterly.

Message 15 of 42
Contributor

Re: Retirement Planning Beginner


@wrote:

wrote:

wrote: 

In the long run, 5% is neither horrible nor great. 30 years ago, it would have been horrible given that you could earn 5% just shoving cash in a savings account back then. 

 


5% in a quarter is quite good. I think you read it as 5% in a year.


Yes, that would be correct. I'm used to looking at everything in terms of annual, not quarterly.


I'm curious to what I will see at the 1 year mark. I suppose based on this info the best thing I could do is try to max out the allowed 401K per to year to start. 

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Message 16 of 42
Frequent Contributor

Re: Retirement Planning Beginner


@wrote:

wrote:

wrote:

wrote: 

In the long run, 5% is neither horrible nor great. 30 years ago, it would have been horrible given that you could earn 5% just shoving cash in a savings account back then. 

 


5% in a quarter is quite good. I think you read it as 5% in a year.


Yes, that would be correct. I'm used to looking at everything in terms of annual, not quarterly.


I'm curious to what I will see at the 1 year mark. I suppose based on this info the best thing I could do is try to max out the allowed 401K per to year to start. 


Probably not 20%.  Some quarters you will see 5% some -1.    Be happy with 7-10%.  If you can do 7-10% longterm you are beating most of the market.

Message 17 of 42
Community Leader
Super Contributor

Re: Retirement Planning Beginner

Bear in mind that the market is in an unusual place.  The GOP tax cuts are releasing lots of funds which are doing unusual stuff. We are currently in a place of odd bullish optimism (arguably analagous to the sentiment that preceded the crash of the late 20s) where stocks are strongly overvalued and yet people are buying more.

 

One of the greatest things you will learn from Bernsteins two books is how important disciplined mental habits are to an investor.  Bernstein writes at one point that even when you have an intellectual understanding of how human psychology affects investment choices (notably greed, mania, and terror), nothing can quite prepare you for your first experience of an actual market correction (e.g. a "crash"), when you wake up and find out that you have lost a third of what you had the day before.

 

But a mentor like Bernstein (who was a neurologist in his earlier career and who has a special understanding of the way the brain affects investments) is a good place to start. 

Message 18 of 42
Established Contributor

Re: Retirement Planning Beginner


@wrote:

Bear in mind that the market is in an unusual place.  The GOP tax cuts are releasing lots of funds which are doing unusual stuff. We are currently in a place of odd bullish optimism (arguably analagous to the sentiment that preceded the crash of the late 20s) where stocks are strongly overvalued and yet people are buying more.

 

One of the greatest things you will learn from Bernsteins two books is how important disciplined mental habits are to an investor.  Bernstein writes at one point that even when you have an intellectual understanding of how human psychology affects investment choices (notably greed, mania, and terror), nothing can quite prepare you for your first experience of an actual market correction (e.g. a "crash"), when you wake up and find out that you have lost a third of what you had the day before.

 

But a mentor like Bernstein (who was a neurologist in his earlier career and who has a special understanding of the way the brain affects investments) is a good place to start. 


This can't be overstated. There will come a day when stuff starts going sideways and downways in the market (we're having a mini-correction now that bond and interest rates are finally waking up) and the successful people know to do nothing when that day comes. Don't panic, don't sell, don't overreact.

 

Take comfort in knowing that over long periods of time the S&P returns around 10%. From 2007 to 2017, returns averaged out to just under 10% and from 1987 to 2017 the returns averaged closer to 11%. We also all know that within that timespan, we had two major bubbles and subsequent recessions. Those who panicked and dumped during those recessions lost out while those who stayed the course or bought in made out like bandits.

Message 19 of 42
Established Contributor

Re: Retirement Planning Beginner

stocks and bonds will get much cheaper in the future. The market will correct itself and revert to the mean averages, which it is doing today and last few days.

Message 20 of 42