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Posted by on August 7, 2008, 4:08 pm
Thanks to a side business and being extremely frugal , I save around
$5-10k/ month. So I have maxed out my 401k, Traditional IRA. Now my
question is should I open a SEP account and invest $10k/ year? This
would bring my total contribution to retirements accounts around $30k/
year.
Since I am very frugal, that is more than enough for me to live off. I
am 30 by the way. How does one expenses change at 60 ? What do I do if
I find out I have pot loads of money in my retirement accounts that I
can not spend before I die? Are there better places I should put my
money instead of a SEP?
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Posted by joetaxpayer on August 7, 2008, 5:08 pm
nonsense@mynonsense.net wrote:
> Thanks to a side business and being extremely frugal , I save around
> $5-10k/ month. So I have maxed out my 401k, Traditional IRA. Now my
> question is should I open a SEP account and invest $10k/ year? This
> would bring my total contribution to retirements accounts around $30k/
> year.
>
> Since I am very frugal, that is more than enough for me to live off. I
> am 30 by the way. How does one expenses change at 60 ? What do I do if
> I find out I have pot loads of money in my retirement accounts that I
> can not spend before I die? Are there better places I should put my
> money instead of a SEP?
The SEP IRA has its own limit 20% of gross (IRS says 25% of
compensation, which works out to that) income.
There are too few details for a clear answer. You save 60-120K/yr, so
30K pretax is not out of line, you could go higher if your side business
does well. Are there better places to put the money? Well, I don't know
how you're invested at all. 401(k), IRA, SEP, are all shells, wrappers
defining tax status and a few rules, but you don't talk about what the
investments are in. At 30, you should be somewhat aggressive, and seek
to minimize expenses. A .1% S&P index is going to likely outperform a
better diversified set of high expense funds. Of course, you should seek
low cost as well as diversification, I am just making a point.
Are you single, kids, house? Ok to think about 60, but if you get
married at 35 and have 3 kids, your life will change. At 60, when the
last one graduates college, you will feel you hit the lottery.
As a general goal, aiming to replace your income at retirement works
like this: In today's dollars, look at your net, after taxes and
savings. In your case that may be just 50 or 60% of your gross. Subtract
the replacement rate for social security. For high earners, that may be
15%-20%. So let's say you need to replace 40%. If you subscribe to the
4% rule, that 4% is the safe withdrawal rate for retirement funds, you
need to have about 10X your needs, or 4X your inflation adjusted gross
income. Your actual numbers may vary, as I can only guess your current
percentages. For those who live on 80% of their gross, the number goes
much higher of course.
Joe
www.blog.joetaxpayer.com
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Posted by PeterL on August 7, 2008, 5:08 pm
On Aug 7, 1:08 pm, nonse...@mynonsense.net wrote:
> Thanks to a side business and being extremely frugal , I save around
> $5-10k/ month. So I have maxed out my 401k, Traditional IRA. Now my
> question is should I open a SEP account and invest $10k/ year? This
> would bring my total contribution to retirements accounts around $30k/
> year.
>
> Since I am very frugal, that is more than enough for me to live off. I
> am 30 by the way. How does one expenses change at 60 ? What do I do if
> I find out I have pot loads of money in my retirement accounts that I
> can not spend before I die? Are there better places I should put my
> money instead of a SEP?
>
There are so many unknown factors when you try to predict what would
happen in 30 yrs. You may get married and have kids. And you will
then have more expenses such as saving for the kids' college fund.
And you may want to leave some money for them and maybe your
grandkids. How does ones expenses change at 60? Let's say 30 years
ago no one would've predicted that gasoline would be $4 a gallon. So
how would anyone know what your expenses will be in 30 yrs?
I think in general it's much much better to have too much money than
not enough money.
On the other hand I am devising a way such that I can take my money
with me when I die. Stay tuned.
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Posted by John A. Weeks III on August 7, 2008, 5:55 pm
In article
nonsense@mynonsense.net wrote:
> Thanks to a side business and being extremely frugal , I save around
> $5-10k/ month. So I have maxed out my 401k, Traditional IRA. Now my
> question is should I open a SEP account and invest $10k/ year? This
> would bring my total contribution to retirements accounts around $30k/
> year.
The SEP is one of the biggest gifts you will ever get from Uncle
Sam. I'd max it out. Even if you are putting in too much this
year, you have no idea what next year might bring you. You might
get sick and never be able to work again, or your industry might
tank and you end up make 1/5 of what you made this year. The old
saying is to make hay while the sun shines.
-john-
--
======================================================================
John A. Weeks III 612-720-2854 john@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
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Posted by on August 8, 2008, 5:15 am
> You might
> get sick and never be able to work again, or your industry might
> tank and you end up make 1/5 of what you made this year. The old
> saying is to make hay while the sun shines.
In these situations you describe, wouldn't I be better off having the
money in something more liquid? I assume SEP has early withdrawal
penalties if I need to take money out of it before retirement age?
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
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