Where do I start?

[PrimeRate]

I've been lurking the MyFico boards for quite some time now and felt it was finally time to ask the pros here a question. I've worked on building a strong credit profile for the past few years and am now looking to start working on building retirement funds. I'm 26 and my wife is 24, we have ABSOLUTELY no idea where to start. All the research I've done online brings me to lingo I just can't decipher. I met with a BOA rep at my local branch and they were reading out of a handbook the entire time... needless to say I didn't feel they could help me; with what seemed to be the exact knowledge and experience I have in this department. 

Can anyone either point me to some informative links or tell me a good account to open to start? I thank you so much in advance!

[mongstradamus]

As far as it goes where to start. Make sure you have an emergency fund of 3-6 in highly liquid form. I think most people like to put that in an high yields savings account like cap one or ally. I would find out about your 401k plans with your employer. I would at least put in as much as the company will match. If you have good plans at work then i would try to max out your 401k if possible. I believe its 17.5 k an year you can contribute. If the plans are not so good then i would open up an ira and try and contribute the 5500 an year you are allowed to contribute. 

That should be an good start. I am sure there will be other people that will add what they would do.

[Jazzzy]

I agree with the above poster...

Get a good healthy emergency fund/savings account set up.

Then make certain that you are both participating in your 401k plans at your jobs, at least up to the point where you get the maximum match. Your employer's match is free money to you.

Also, when you determine the amount or percentage you want to contribute to your retirement plans, be liberal. Start out by contributing the maximum you can afford. You can always decrease the amount later if it is unsustainable. The trick is that you can't spend money you don't have in your checkbook. You will learn to live within your means if you never have the money in your pocket. For example, my daughter has a high school diploma and did not go to college. She cooks at a hospital and works very hard. Makes approx. $11 per hour. Instead of chosing the normal minimal percentage contribution that many of her fellow workers did (if they even contributed at all), my daughter chose to contribute 15%. She is now 35 y/o and has well in excess of $100k in her 401k. In all these years she has not reduced her contribution amount because she has learned to live within her paycheck. She even has savings and actually bought a house with the help of a USDA mortgage. Also, she has never borrowed from her 401k, understanding that borrowing is very costly in that the money taken out can't grow in the meantime.

I guess what I'm trying to say is that the key to saving for retirement is to learn to live well within your means now.

[Anonymous]

A good place to start is with your employer's retirement program 401k, 403b, pension program. Ask your HR for more information on those. If your employer does a 401k or 403b and matches your contribution to the account, determine the amount (usually a percentage of pay) that you need to contribute to get your employer to match. It's free money from your employer so you should always contribute the minimum amount to get the match.

After your 401k your next step would be to establish an emergency fund for 6 months worth of expenses. A  good place to put that money is in a savings account or money market account that has check writing and a debit card. A money market account historically provides better rates  (currently they're about the same as a savings account) with the restriction of allowing a certain amount of withdrawals penalty free(usually 6, after that there's a fee for each withdrawal). But if the account is for emergency's then you shouldn't be withdrawing from the account a lot. Online banks such as ally, barclays, ge, discover provide the best rates. I personally am a fan of ally. Great rate's no minimum deposits and no maintenance fees.

After  you establish an emergency fund you should look into a Roth IRA. If your joint annual gross income (AGI) is less than $181,00 you and you wife can each individually put annually up to $5,500 in a roth ira account. Contributions are made after taxes and can be withdrawn tax free in retirement compared to 401k/traditional IRA which are non taxed contributions but are taxed when withdrawn in retirement. Roth IRA's can be established through most major brokerage firm's. If you like banking through BOA then you could set up a roth IRA through Merril Lynch and be able to see banking and retirement accounts in one place. For me I really like Charles Schwab. Lot's of investment options many commission free and great customer service. 

As for investment options in your 401k and IRA. Since you are young you should invest heavily in stocks. I would suggest low expense mutual funds, index funds, and exchange traded funds(ETF's). These give you broad diversification of a lot of stocks at low expense.  You have many years to ride the ups and downs of the stock market and stocks will provide the best rate of return. I would look at a portfolio of 90% stocks and 10% bonds. Then around age 40 you can start to transfer a more in to safer less risk investments until you retire. A good way to start learning about investment options is to go to your local library. Find some beginner investment books hey should help explain all the different options you have to invest in. Pick up magazine's like money and kiplingers and start reading them to get free investment advice.

The biggest advantage you have right now is TIME!!!! Compounding interest is your best friend . If you contribute the maximum $5,500 to a roth IRA every year for 40 years with an average return of 8% you would have over $1.5 million to use tax free in retirement. If both you and your wife contributed that amount thats $3 million tax free money for retirement. 

[PrimeRate]

Big thanks to the 3 of you for the responses. I'll get working on that emergency fund first. I really appreciate all of the insight. 

[Anonymous]

Hello. I've currently been researching retirement a lot the past couple years and I think I might have some information you find useful. First off, the emergency savings is a must! Second thing you should focus on is how you would like to earn an income for retirement. If you like stocks and can actually get on inbetween 9:30 am to 4:00 pm eastern time, then I would suggest dividend growth investing for you. Even if you can't always be online in those times it's still my number one way to make money. Read "The Single Best Investment" by Lowell Miller. It does a fantastic job explaining how if you have 30+ years dividend growth investing will really hook you up later with very little work done. Another popular retirement income is rental property. There are various ways to go about doing this: buying houses to rent yourself, being a part owner of an apartment building, renting storage units, ect. I personally don't want to do those, so you'd have to find your own research for that. Another option is starting your own business that you can hopefully sell or get someone else to eventually run for you. I don't know which option you want because I don't know your personality type. But that's all retirement planning comes down to basically. Finding an passive income stream that is large enough to meet your retirement goals. I personally recommend a ROTH IRA because you get to ignore taxes once the money is in the account. I wouldn't recommend mutal funds because they usually underperform the market and take a fee to run. ETFs with low costs aren't a bad option for someone who doesn't know much. Good luck!

[thom02099]

Some excellent advice given by the posters above.  One thing I'd like to add:

DON'T overlook Social Security.  I'm not going to get into the political ramifications and future of it, but it's in your best interest to inquire as to whether your employer even participates and contributes to Social Security.  Many don't.  In order to have and draw Social Security when the time comes, you must have participated and contributed to it.  I was very fortunate early in my career to have employers who participated in it, and I met the criteria to collect at a young age (and there is a requirement).  Later in my career, many of the employers I worked for opted out of SS and used 401(k) plans as the sole means of retirement planning.  Go to www.SSA.gov and start reading now, while you're very young. There's a wealth of information there, some of which will debunk some of the myths (positive and negative) about Social Security.  Social Security should never be anyone's sole means of retirement support, but it's unwise to ignore it and not plan for it if possible. 

[compassion101]

---

@thom02099 wrote:

Some excellent advice given by the posters above.  One thing I'd like to add:

DON'T overlook Social Security.  I'm not going to get into the political ramifications and future of it, but it's in your best interest to inquire as to whether your employer even participates and contributes to Social Security.  Many don't.  In order to have and draw Social Security when the time comes, you must have participated and contributed to it.  I was very fortunate early in my career to have employers who participated in it, and I met the criteria to collect at a young age (and there is a requirement).  Later in my career, many of the employers I worked for opted out of SS and used 401(k) plans as the sole means of retirement planning.  Go to www.SSA.gov and start reading now, while you're very young. There's a wealth of information there, some of which will debunk some of the myths (positive and negative) about Social Security.  Social Security should never be anyone's sole means of retirement support, but it's unwise to ignore it and not plan for it if possible. 

---

Hi Thom, do you have a link to some info about this? I've never heard of a company being able to opt out os social security. I'd like to read up on this if it's possible. A quick google search revealed nothing except the option for clergy members to opt out.

[thom02099]

---

@compassion101 wrote:

---

@thom02099 wrote:

Some excellent advice given by the posters above.  One thing I'd like to add:

DON'T overlook Social Security.  I'm not going to get into the political ramifications and future of it, but it's in your best interest to inquire as to whether your employer even participates and contributes to Social Security.  Many don't.  In order to have and draw Social Security when the time comes, you must have participated and contributed to it.  I was very fortunate early in my career to have employers who participated in it, and I met the criteria to collect at a young age (and there is a requirement).  Later in my career, many of the employers I worked for opted out of SS and used 401(k) plans as the sole means of retirement planning.  Go to www.SSA.gov and start reading now, while you're very young. There's a wealth of information there, some of which will debunk some of the myths (positive and negative) about Social Security.  Social Security should never be anyone's sole means of retirement support, but it's unwise to ignore it and not plan for it if possible. 

---

Hi Thom, do you have a link to some info about this? I've never heard of a company being able to opt out os social security. I'd like to read up on this if it's possible. A quick google search revealed nothing except the option for clergy members to opt out.

---

Not knowing what your career path is, that's why I suggested you check with your employer.  I've worked in Municipal Government for the bulk of my adult career.  My current employer opted out of Social Security back in the 80s; other city governments I've worked for also opted out of participating in Social Security.  That's why I say I was lucky that I met the requirements to collect Social Security early in my career.  Some government agencies I worked for in the 70s and early 80s did deduct Social Security from my pay.    As I recall, at that time, the 80s and into the 90s, businesses and goverment entities could opt out of participation in Social Security, as long as they provided a viable option in place of it.  This was never an individual opt out.  That's why I suggested you check with your employer to see if they participate; likely they do, if you have Social Security deductions on your paystubs. 

ETA:  Some examples:

State employees of Alaska, Colorado, Louisiana, Maine, Massachusetts, Nevada and Ohio do not participate in Social Security. 
Local government workers' coverage varies as well. In Louisiana, public school teachers are not covered for example.

Federal employees hired since 1983 do, those before could opt in or out.

The quasi-governmental Metropolitan Transportation Authority of Los Angeles, does not collect Social Security tax.

I've been trying to recall, but the old memory cells aren't what they used to be, but seems like there were some big corporations that also opted out in the 80s, relying solely on 401(k) plans for retirement. 

[compassion101]

I mostly meant private companies. I've never heard of any that could opt out of SS and was wondering if you knew of some.

I do know the railroad workers have a different system that was put in place by the govt. I also know of a few municipal/state workers who have alternate systems to SS. OP probably knows whether he works for one of those but if not, you are right he should find out. SS is a piece of retirement and shouldn't be discarded just because the system is not so great.