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Financial Planning - Financial planning in general. (Moderated)
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Posted by on June 5, 2008, 5:21 am
Please don't rip me...It simply isn't necessary.
I simply don't know what I am doing with my retirement investments. I
have an IRA SEP( my company contributes up to 3% of my
salary...balance about 16K...I put in about 15K a year) and I have 2
IRAs that I put 4k in for the past 2 years. So total is about 26K.
My salary is 90K(w2 income plus a small amount of self employed
income) plus a bonus of approx. 35 k paid in July.
I pay 14.11% in child support(which is figured from gross wages but
obviously paid from net). I have 10 K in cash emergency fund.
I have about 6 K in auto and CC debit( CC debit under $1,500).
I can "save" approx. 25% of my wages. I have a ton of catch up
retirement to do. I turned 49 last Thursday.
I have lost 12% of my retirement since Nov. in the market.
I owe 78K on my modest house. Would like to pay off in 4 years then
put balance in retirement fund.
The company is small that I work for but has been very successful( I
say modestly, due to a large effort from me). Owners are willing(but
very reluctant) to give me equity.
Sorry to be rambling but I simply don't know who to ask what I am
doing right or wrong.
Any thoughts?
Thanks in advance.
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Posted by John A. Weeks III on June 5, 2008, 8:27 am
In article
eholand@charter.net wrote:
> Please don't rip me...It simply isn't necessary.
You are going to get just a little from me. You see, your
previous mode of operation left you with a disorganized mess.
You are not in that bad of shape, just way behind and totally
disorganized. The best that I can suggest right now is that
you pick up a few books on personal financial planning and
retirement, and do some reading. In the long run, nobody will
care more about your situation that you will.
> I simply don't know what I am doing with my retirement investments. I
> have an IRA SEP( my company contributes up to 3% of my
> salary...balance about 16K...I put in about 15K a year) and I have 2
> IRAs that I put 4k in for the past 2 years. So total is about 26K.
Sounds like you are on the right track, but way behind. Your
totals should be in the quarter to half million range by now,
not in the low 5 digits.
> My salary is 90K(w2 income plus a small amount of self employed
> income) plus a bonus of approx. 35 k paid in July.
You make a ton of money. Where does it all go? Perhaps you are
going to have to look at doing a budget for a few months to figure
out what happens to all this cash. You see, you are a the very,
very top of the scale for people who work for a living, yet you
are little more than entry level for retirement savings. That
is a huge disconnect. The money has to be going somewhere.
> I pay 14.11% in child support(which is figured from gross wages but
> obviously paid from net). I have 10 K in cash emergency fund.
> I have about 6 K in auto and CC debit( CC debit under $1,500).
Take the $10K and pay off these bills and loans today. No sense
paying interest when you are getting close to zero on savings.
> I can "save" approx. 25% of my wages. I have a ton of catch up
> retirement to do. I turned 49 last Thursday.
Ding, ding, ding. You get it. That is your biological alarm
clock going off. The problem with most people is that this alarm
goes off too late in life so they don't have any time for the
miracle of compound interest to help out.
> I have lost 12% of my retirement since Nov. in the market.
The market goes up and down. Retirement money is long term
money, so don't worry about short term yo-yos.
> I owe 78K on my modest house. Would like to pay off in 4 years then
> put balance in retirement fund.
Unless you have a sub-prime loan, don't get focused on paying off
your home. You get the small tax advantage, so the money does not
cost that much. It is better to get your money into long term savings
and let time work to your advantage.
> The company is small that I work for but has been very successful( I
> say modestly, due to a large effort from me). Owners are willing(but
> very reluctant) to give me equity.
Don't worry about equity. Partnerships rarely work. If you are the
key person, make sure you keep getting paid that way, or find someone
who will pay you right. Owning and running a business is a real
nightmare, unless that is really where your passion is.
-john-
--
======================================================================
John A. Weeks III 612-720-2854 john@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================
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Posted by rick++ on June 5, 2008, 11:50 am
> Sounds like you are on the right track, but way behind. Your
> totals should be in the quarter to half million range by now,
> not in the low 5 digits.
A simplistic scale is:
age: annual incomes saved:
30 one
40 two
50 four
60 eight
65 twelve
This makes a ton of assumptions about things, but is
a good first cut (from NY Times). Suze Orman uses
something very close to this when she denies people
on her "Can I Afford it?" segment.
That suggests about $330K for the OP and what John said too.
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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
which we respond. For all of the other tips and suggestions, see "FROM THE
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Posted by Elle on June 5, 2008, 12:43 pm
1.
"Big picture checklist," with higher priority higher on
list:
(a) Emergency fund
(b) Pay off high interest rate debts
(c) Contribute to tax advantaged retirement plans at least
up to matching
(d) Contribute more to retirement (both tax advantaged and
not tax advantaged)
(e) Consider life insurance to help your child should you
die
(f) Consider a tax advantaged college savings plan for your
child
2.
Budget:
(a) Put expenses on a spreadsheet. Monthly bills, child
support, recreation, anticipated major repairs, mortgage,
and so forth. Some of these will be pared down.
(b) Compute how much you need to retire. This will determine
your saving and spending habits in the future.
Where you are with all this:
(1a) Is $10k at least six months of expenses? If so, good
enough.
(1b) Pay off the CC debt now from your emergency fund, then
start replenishing your emergency fund. Give the interest
rate and monthly payments on your auto loan and mortgage,
and we will talk more about them.
Move to 2. budget, since it determines how much can go
towards the rest of the items in 1.
(2a) Assuming $90k is your net income from work, and
assuming about $20k of child support each year, you have
about $70k of income per year, or about $5.8k of income each
month.
(2b) Let's start getting some ideas about how much you need
to save for retirement. Assume by retirement you have the
house paid off, no debts, and can live easily on $40k per
year of income (at today's prices, in today's dollars) in
retirement. We will account for inflation momentarily. A
crude rule of thumb for retirement years is to figure a
drawdown of 4% from your retirement savings each year. So
you need around $40,000/0.04 = one million dollars in
today's dollars before you can safely retire (very crude
guesstimate based on some conventional wisdom). You are 49.
Figure you will work at least 15 more years. You need to
save around $65k a year (scaled upwards each year for
inflation). Now that will be pretty impossible for the next
few years (unless you do as John Weeks advises, and you
probably should, for peace of mind), but you should be able
to get closer to that as you age and continue to work. The
next free weekend you have, try experimenting with some of
the tools linked at
http://ellessite.googlepages.com/retirementwithdrawalrates
to get a better idea of how much you need to retire.
Next steps: Asset allocation among company retirement plan
and IRAs. Do not worry about market ups and downs. Worry
about asset allocation. Discussion of health insurance (now
and in retirement). Discussion of job security.
Lurk here and consider googling for other financial planning
fora and following them. Ask questions on individual points
above, starting new threads with a focus on each point. I
prescribe listening to and reading Clark Howard, Suze Orman,
and Scott Burns as well. They do not all say exactly the
same thing but they are very close in their advice, and the
(generally small) variations will help focus you further.
Pretty soon it will become repetitive and you can finely
tune your plan.
Lastly, thanks to the net, you are not alone in your effort.
It should not cost you a dime to get focus, as long as you
remember the only stupid question is an unasked one. Most
likely your choices will be some kind of average of what
people say here, based on what I know of the high
participation rate, and an average of a lot of thoughtful
input (when it comes to numbers like these) typically yields
a good choice.
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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
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
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Posted by joetaxpayer on June 5, 2008, 1:14 pm
Elle wrote:
> (2b) Let's start getting some ideas about how much you need
> to save for retirement. Assume by retirement you have the
> house paid off, no debts, and can live easily on $40k per
> year of income (at today's prices, in today's dollars) in
> retirement. We will account for inflation momentarily. A
> crude rule of thumb for retirement years is to figure a
> drawdown of 4% from your retirement savings each year. So
> you need around $40,000/0.04 = one million dollars in
> today's dollars before you can safely retire (very crude
> guesstimate based on some conventional wisdom).
At $90K income level, one can expect approx. $27K from Social Security.
So if $40K is the OP's replacement target, he has $13K to make up. From
your 25X number (which I agree and endorse) that's $325K. This is not
only doable for the OP, but at 49, he should be able to exceed this, and
track his progress ahead of inflation. I like rick++'s rule showing X
times income at given ages. It has the inflation adjustment built in. So
for a retirement right now, OP needs less than four times his income at
retirement.
Note - that $325 figure is low enough that SS tax trap doesn't apply,
and $13,000 income is mostly fit into STD deduction and exemption, the
rest taxed at just 10%. Thus, I suggest he save all he can in pre-tax
accounts.
SS numbers posted in an article by me at
http://www.blog.joetaxpayer.com/archives/150
and my wildly popular spreadsheet backing up your and rick++'s numbers
at http://www.joetaxpayer.com/retirement.html
Joe
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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
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
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