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Kennedy

Posted: Tue Jul 17, 2007 12:02 am

Guest

Here's the short version-

Desire to retire in about 20 years.

Currently have about $1,500 in a previous 401K.

Can swing $6,000 annually for investment purposes at this point. Figuring on
any raises over cost of living going to retirement as well, so that number
could grow.

Current company offers a 401K, but only a 33% match on up to 4%.

No defined pension plan available.

Most of the funds available through the company 401K aren't very attractive,
IMO.

Have approx. $70K in home equity.

Home will be paid off by the time retirement hits (home currently worth
$145K).

Here's my questions:

1) Is it reasonable to expect returns of 12-15% on average? If so, by my
math, I could have between $500-750K when my desired retirement date rolls
around. With my house being paid off at retirement, I don't see why those
numbers wouldn't provide a not-so-terrible retirement. At a nominal increase
of 3% per year, my home would be worth another $250K or so. Sell that, buy a
small lot in the mountains, build a small house and the interest off $1M
should be enough to pay a mortgage and fish all day, right? And of course,
write the next great American novel.

2) I'm leaning towards a Roth IRA and not contributing to my company 401K.
I'd max the IRA and the remainder....where's the best place to put it? My
retirement date would make me 53, so for that 6.5 years before my earning
withdrawals are qualified, where would the best place to pull those funds
from? I'm thinking just a plain trading account with Scottrade or the like.

3) I'm ready to open up a Roth IRA with Scottrade and I want to make sure
that I understand this correctly: I can move my funds between different
mutual funds w/o penalty as long as I don't take the money out of the IRA,
right? So I have 25% of my wealth in ABC and I desire to take half of that
and move it to XYZ. I can do that without any tax penalties, correct?

4) Does this seem like a realistic goal? 20 years, $500-$750K in retirement
savings.

Thanks in advance for the help. Looking forward to being in the group for a
long time. Smile

Posted: Tue Jul 17, 2007 1:29 am

Guest

I think you would be lucky to get 8% returns. Starting with $1,500 and
adding $500/month you would have about $393,000 pre-tax after 20 years.

If you will have health care taken care of and taxes are kind to you and you
want to buy Ted Kaczynski's old one room hide-out in the mountains of
Montana and live his lifestyle you might be ok.

I would definetly do 4% in the 401k because the 33% match says you shouldn't
be all that concerned with the quality of the funds in the plan.

"Kennedy" <kennedywon@gmail.com> wrote in message
news:5g215aF3aroroU1@mid.individual.net...

Quote:

Here's the short version-

Desire to retire in about 20 years.

Currently have about $1,500 in a previous 401K.

Can swing $6,000 annually for investment purposes at this point. Figuring
on any raises over cost of living going to retirement as well, so that
number could grow.

Current company offers a 401K, but only a 33% match on up to 4%.

No defined pension plan available.

Most of the funds available through the company 401K aren't very
attractive, IMO.

Have approx. $70K in home equity.

Home will be paid off by the time retirement hits (home currently worth
$145K).

Here's my questions:

1) Is it reasonable to expect returns of 12-15% on average? If so, by my
math, I could have between $500-750K when my desired retirement date rolls
around. With my house being paid off at retirement, I don't see why those
numbers wouldn't provide a not-so-terrible retirement. At a nominal
increase of 3% per year, my home would be worth another $250K or so. Sell
that, buy a small lot in the mountains, build a small house and the
interest off $1M should be enough to pay a mortgage and fish all day,
right? And of course, write the next great American novel.

2) I'm leaning towards a Roth IRA and not contributing to my company 401K.
I'd max the IRA and the remainder....where's the best place to put it? My
retirement date would make me 53, so for that 6.5 years before my earning
withdrawals are qualified, where would the best place to pull those funds
from? I'm thinking just a plain trading account with Scottrade or the
like.

3) I'm ready to open up a Roth IRA with Scottrade and I want to make sure
that I understand this correctly: I can move my funds between different
mutual funds w/o penalty as long as I don't take the money out of the IRA,
right? So I have 25% of my wealth in ABC and I desire to take half of that
and move it to XYZ. I can do that without any tax penalties, correct?

4) Does this seem like a realistic goal? 20 years, $500-$750K in
retirement savings.

Thanks in advance for the help. Looking forward to being in the group for
a long time. Smile

Jerry

Posted: Tue Jul 17, 2007 3:48 am

Guest

Quote:

Here's the short version-

Desire to retire in about 20 years.

Currently have about $1,500 in a previous 401K.

Can swing $6,000 annually for investment purposes at this point. Figuring
on any raises over cost of living going to retirement as well, so that
number could grow.

Current company offers a 401K, but only a 33% match on up to 4%.

No defined pension plan available.

Most of the funds available through the company 401K aren't very
attractive, IMO.

Have approx. $70K in home equity.

Home will be paid off by the time retirement hits (home currently worth
$145K).

Here's my questions:

1) Is it reasonable to expect returns of 12-15% on average? If so, by my
math, I could have between $500-750K when my desired retirement date rolls
around. With my house being paid off at retirement, I don't see why those
numbers wouldn't provide a not-so-terrible retirement. At a nominal
increase of 3% per year, my home would be worth another $250K or so. Sell
that, buy a small lot in the mountains, build a small house and the
interest off $1M should be enough to pay a mortgage and fish all day,
right? And of course, write the next great American novel.

2) I'm leaning towards a Roth IRA and not contributing to my company 401K.
I'd max the IRA and the remainder....where's the best place to put it? My
retirement date would make me 53, so for that 6.5 years before my earning
withdrawals are qualified, where would the best place to pull those funds
from? I'm thinking just a plain trading account with Scottrade or the
like.

3) I'm ready to open up a Roth IRA with Scottrade and I want to make sure
that I understand this correctly: I can move my funds between different
mutual funds w/o penalty as long as I don't take the money out of the IRA,
right? So I have 25% of my wealth in ABC and I desire to take half of that
and move it to XYZ. I can do that without any tax penalties, correct?

4) Does this seem like a realistic goal? 20 years, $500-$750K in
retirement savings.

Thanks in advance for the help. Looking forward to being in the group for
a long time. Smile

-herb

Posted: Tue Jul 17, 2007 4:38 am

Guest

"Jerry" <nospam@???> wrote in message
news:469c03f5$0$24694$4c368faf@roadrunner.com...

Quote:

For planning purposes, your 12% annual returns are high. The Roth IRA s/b
your second investment after you invest in your 401K up to the company
match. Even if your earnings are higher, the 1M would not be enough if
you have no other source of income by retiring at 53 IMO. You calculated
your home value almost tripling, you should also consider the purchasing
power of interest on 1M in 20 years. Also, health insurance is a major
consideration by retiring that early - medicare won't kick in until you
are in the mid 60s. You are correct in the fact that you can move from
one investment choice into another within a Roth IRA account

Good Luck Planning,

Jerry
"Kennedy" <kennedywon@gmail.com> wrote in message
news:5g215aF3aroroU1@mid.individual.net...
Here's the short version-

Desire to retire in about 20 years.

Currently have about $1,500 in a previous 401K.

Can swing $6,000 annually for investment purposes at this point. Figuring
on any raises over cost of living going to retirement as well, so that
number could grow.

Current company offers a 401K, but only a 33% match on up to 4%.

No defined pension plan available.

Most of the funds available through the company 401K aren't very
attractive, IMO.

Have approx. $70K in home equity.

Home will be paid off by the time retirement hits (home currently worth
$145K).

Here's my questions:

1) Is it reasonable to expect returns of 12-15% on average? If so, by my
math, I could have between $500-750K when my desired retirement date
rolls around. With my house being paid off at retirement, I don't see why
those numbers wouldn't provide a not-so-terrible retirement. At a nominal
increase of 3% per year, my home would be worth another $250K or so. Sell
that, buy a small lot in the mountains, build a small house and the
interest off $1M should be enough to pay a mortgage and fish all day,
right? And of course, write the next great American novel.

2) I'm leaning towards a Roth IRA and not contributing to my company
401K. I'd max the IRA and the remainder....where's the best place to put
it? My retirement date would make me 53, so for that 6.5 years before my
earning withdrawals are qualified, where would the best place to pull
those funds from? I'm thinking just a plain trading account with
Scottrade or the like.

3) I'm ready to open up a Roth IRA with Scottrade and I want to make sure
that I understand this correctly: I can move my funds between different
mutual funds w/o penalty as long as I don't take the money out of the
IRA, right? So I have 25% of my wealth in ABC and I desire to take half
of that and move it to XYZ. I can do that without any tax penalties,
correct?

4) Does this seem like a realistic goal? 20 years, $500-$750K in
retirement savings.

Thanks in advance for the help. Looking forward to being in the group for
a long time. :-)

I agree with Jerry, above. You could get that kind of return if you assume
a lot of risk but I wouldn't count on it.

Your company's 33% match is free money. Take it.

Don't forget you'll probably have to pay a 10% penalty on funds withdrawn
before age 59.5.

Your assumption that home equity will outpace inflation may or may not be
true. This is the first time in history that the national median house
price is lower than a year ago. It's hard to say what will happen in the
future. Currently there's a bubble that needs to deflate but all real
estate (like politics) is local.

My advice would be to save what you can (401K then Roth) and see how it
goes. I wouldn't count on retiring in 20 years but it's hard to say what
changes will happen in your life during that time.

Maybe you'll write that novel early and sell the movie rights for a bundle.
;-)

-herb

jIM

Posted: Tue Jul 17, 2007 6:57 pm

Guest

Quote:

Don't forget you'll probably have to pay a 10% penalty on funds withdrawn
before age 59.5.

unless they do a 72(t)... in which case money can be accessed prior to
age 59.5 WITHOUT 10% penalty.

jIM

Posted: Tue Jul 17, 2007 7:01 pm

Guest

On Jul 16, 4:02 pm, "Kennedy" <kennedy...@gmail.com> wrote:

Quote:

12-15% is high. 8% should be what you plan for, then be happy you got
12-15% later. If you plan for 12-15%, you will likely need to take on
more risk, or subject yourself to working longer when you don't want
to.

Not sure if 750k for you is enough. Take whatever expense level you
have, and divide this by .03, .04 or .05.

expenses/.03= 99% chance you will be able to live off interest/
dividends, and a reasonable chance you will never touch principal.
expenses/.04=90-99% chance you can live off 4% of your assets. More
than likely you will touch principal, and the 4% withdraw rate is good
for around 30-40 years of withdraws.
expenses/.05 might work. If SS replaces a high amount of your income,
then this could work... and if you plan on dying young, this will also
work.

401k with 33% match is a 33% return on contributions.
Roth is also a good idea
Taxable accounts are also a good idea.

darkness39

Posted: Wed Jul 18, 2007 2:32 pm

Guest

On Jul 16, 9:02 pm, "Kennedy" <kennedy...@gmail.com> wrote:

Quote:

All you need is a good stock index fund (S&P500). And a reasonable
bond fund (active or indexed) such as Pimco Total Return.

Quote:

Have approx. $70K in home equity.

Home will be paid off by the time retirement hits (home currently worth
$145K).

Here's my questions:

1) Is it reasonable to expect returns of 12-15% on average?

No 8% is closer. If you are 100% equities, with say 50% international
and 20% emerging markets, you might get 9-10%. You would take on a
lot more risk to get that last 1% or so.

If so, by my

Quote:

math, I could have between $500-750K when my desired retirement date rolls
around. With my house being paid off at retirement, I don't see why those
numbers wouldn't provide a not-so-terrible retirement. At a nominal increase
of 3% per year, my home would be worth another $250K or so.

Read Robert Shiller Irrational Exuberance SECOND EDITION, the
introduction on real estate prices. Let's summarise by saying an
assumption of house price rise of more than 1% a year above inflation
is unjustified. If you live in a high demand/constricted supply area
(like New York City, or San Francisco) things are likely to be better
than that.

Sell that, buy a

Quote:

small lot in the mountains, build a small house and the interest off $1M
should be enough to pay a mortgage and fish all day, right? And of course,
write the next great American novel.

If you are going to write the Great American Novel, you are just as
likely to do it now, 45 minutes a day before you go to work and 45
minutes a day at the end of the day (just stop watching TV), as you
are when you have all the time in the world. If it's in you, it's in
you. If it's not, it's not.

Quote:

2) I'm leaning towards a Roth IRA and not contributing to my company 401K.
I'd max the IRA and the remainder....where's the best place to put it?

As others have noted, the 33% match is free money. You should
probably take it. *that* gets you closer to your 12% target return.

My

Quote:

retirement date would make me 53, so for that 6.5 years before my earning
withdrawals are qualified, where would the best place to pull those funds
from? I'm thinking just a plain trading account with Scottrade or the like.

I think you want to think about the possibilities of working part time
from that age. Also your medical insurance will be a key problem in
the period 53-65. It's an age where individuals find it very
difficult to obtain affordable insurance (although a good trick is to
use HSA and have a very high deductible ie make your insurance truly
'catastrophic'). You've got to figure that will cost you at least what
it costs now (if you were 53) *plus* inflation *plus* 3% pa (the long
run average increase in health care costs, I believe).

Quote:

3) I'm ready to open up a Roth IRA with Scottrade and I want to make sure
that I understand this correctly: I can move my funds between different
mutual funds w/o penalty as long as I don't take the money out of the IRA,
right? So I have 25% of my wealth in ABC and I desire to take half of that
and move it to XYZ. I can do that without any tax penalties, correct?

It is costs on mutual funds that are the key long term
differentiator. I would recommend that the bulk of your money be
invested in low cost mutual funds or index ETFs, offered by the likes
of Vanguard.

I highly recommend you read books like 'A Random Walk Down Wall
Street' and 'The 4 Pillars of Investment Wisdom' and anything by John
Bogle for a feel about these ideas. You might also check out the
Vanguard Diehards investing forum (as well as FundAlarm).

Quote:

4) Does this seem like a realistic goal? 20 years, $500-$750K in retirement
savings.

Probably not on $6k pa of savings.

Quote:

Thanks in advance for the help. Looking forward to being in the group for a
long time. Smile

FundAlarm and Vanguard Diehards are also useful.

kastnna

Posted: Thu Jul 19, 2007 1:01 am

Guest

On Jul 17, 9:57 am, jIM <noreplysoc...@hotmail.com> wrote:

Quote:

unless they do a 72(t)... in which case money can be accessed prior to
age 59.5 WITHOUT 10% penalty.

In addition any Roth contribs can be taken out tax and penalty free.

kastnna

Posted: Thu Jul 19, 2007 1:53 am

Guest

Kennedy,

A few quick questions. What is your current income? If you are making
$150k then it would likely be best to put your full $6000 into the
401(k). However, if you are making $75k then it might be more
appropriate to only put $3000 into the 401(k) and the rest into
another vehicle (like a Roth). The 4% company match is the key!

As for the house: Remember that the price of the real estate in the
mountains is gonna grow just like the value of your house. It may
appreciate more or less rapidly (but I wouldn't count on a "vacation
area" appreciating slower). Its probably unwise to expect to have any
leftover equity from the sale of your first home.

As everyone else has said, 12-15% is high unless you intend to take on
alot of risk. 8% is the commonly used return.

IF (and that "if" is backed by alot of unknown assumptions) the full
$6k is subject to the 33% match and you are getting 8% annual returns
you can expect to have about $400k pre-tax dollars in 20 years ($1500
+ $6000 annual contributions + $1980 match x 8% annual growth). From
that $400k you can pull a little more than 4% annually, adjust it for
inflation each year (3%), grow the principal conservatively at 6%, and
run out of money at age 90! Of course, you have to make $150k salary
to get that full match.

In other words, 20 years from now you can safely start withdrawing
about $16,500 but it ain't gonna by you much. That's only a little
over $9k in today's dollars. Social Security may help, but you never
know what could happen in the interim. You also will have to go a
while without it due to your early retirment age. You will also need
to supply your own medical coverage in until you reach medicare age.

Long story short, you probably need to save more money to achieve your
goals. Not trying to bubble burst, I'm just a realist. There is a
small chance that you pull it off with your current plan, but you need
many, many, many pieces to fall perfectly into place for that to
happen. If even one variable goes of course, your entire plan could
implode.

Don't let all of us discourage you though. You have nothing to lose by
trying. Even if it is not do-able, you'll have a paid-for house and a
decent nest egg. That's no small accomplishment. You may also find
yourself closer than you anticipated with just a few small changes. In
the scenario above, working just 7 more years to age 60 will give you
a nest egg of $700k and you'll be that much closer to SS and medicare.

Good luck

Doug

Posted: Thu Jul 19, 2007 5:44 am

Guest

The fact is, with stocks you do not KNOW. But stocks and real estate
are about the best investments. Just hold ALL STOCK portfolio, mutual
funds with low, low expenses and you will do as well as possible.
Maybe put 5% in precious metal STOCKS, but no bonds. If things go in
the future like they have in the past, you may make as much as 10% a
year. Then again, maybe something entirely different. Don't put all
your eggs in one basket and you might consider keeping the mortgage on
your real estate high, you wont pay much in taxes and your
investments, hopefully, will outperform your borrowing costs.

Flasherly

Posted: Thu Jul 19, 2007 6:10 pm

Guest

On Jul 16, 4:02 pm, "Kennedy" <kennedy...@gmail.com> wrote:

Quote:

Here's the short version-

Desire to retire in about 20 years.

1) Is it reasonable to expect returns of 12-15% on average? If so, by my
math, I could have between $500-750K when my desired retirement date rolls
around. With my house being paid off at retirement, I don't see why those
numbers wouldn't provide a not-so-terrible retirement. At a nominal increase
of 3% per year, my home would be worth another $250K or so. Sell that, buy a
small lot in the mountains, build a small house and the interest off $1M
should be enough to pay a mortgage and fish all day, right? And of course,
write the next great American novel.

I'm getting 12% and have seen some points more for a cumulative
average over a few years. Either that or a beachfront hacienda in
Latin America might be nice. But, being I haven't a long enough time
frame and find actively engaging in risks alluring, even after I keep
trying to tell myself not to, I suspect I'm not of an opinion to say
that what's ultimately in store would be entirely within my means.
Otherwise, I, could also have it all, of course.

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