Planning to save for the future

[Syntex]

So I decided that its about time to open up a savings account and start saving for retirement. I am currently 24 with not too many bills and a credit card that will be payed off in the coming months.

I talked to a few people including a friend of mine who is majoring in accounting and the best plan seems to be putting the max amount a year(3000$) into a Roth IRA account and just sitting on it. Only drawback is if I ever NEED that money for whatever reason there are penalitys for early withdrawal but the money is only taxed going into the account and not coming out(I think) so that's a plus.

Other options I have heard is to pay off credit card before saving because I am gaining 2% but paying 4% in interest where if I payed off my card I could add that 4% to bump it up to 6%.

What I want to know is if anyone on BG are working on some savings for the future and how they are going about doing it. I don't plan to touch my savings at all so a Roth IRA is probably a good plan for me but what are my other choices as far as savings bonds ect? Also with something like a Roth IRA is it better to open 2 accounts and put 1500+ in each a year or to keep one account active and keep it full every year?

Oh and one last thing, I work at a dead-end job so I will get nothing work related in this area.

Anyone able to comment on this?

[Pikarya]

Oh and one last thing, I work at a dead-end job so I will get nothing work related in this area.

Do you expect to ever advance in that dead-end job? Or looking for better in the future?

[Antithesis]

If there is any advice I can give you, it is to not link your Savings Account to your Checking Account for any reason (Overdraft protection, etc.) You will find any excuse to take money out of your Savings Account.

[Norellicus]

I have a job that offers 401(k) and have taken the maximum amount that the company will match out of my paychecks to go into that account; the difference between that and 10% of my gross paycheck is then sent to a savings account. I also have my own mutual fund investments that I pay out myself for posterity's sake as something more accessible and stable than the 401k money, but more volatile than the slow steady gain of the savings account. I've been doing this for at least three years, maybe a little longer, and have enough saved that I could live at "full steam" without my current job for close to a year if I liquidated it all (3 months on the savings account alone).

Saving isn't really hard, you just have to budget it into the rest of your expenses. Agree that paying off CCs isn't a bad thing though, but it's advisable to keep one running with a very low balance (so interest doesn't hurt so bad); this helps feed your credit rating in a sort of roundabout way.

[Syntex]

Do you expect to ever advance in that dead-end job? Or looking for better in the future?

Dead-end is not the position in the company but the company itself has no higher positions except a manager which makes 1 dollar more an hour but is worked 3x as much and thats pretty much it.

I plan to finish college then get my career going, maybe sooner if someone is willing to hire me while I go to college.

If there is any advice I can give you, it is to not link your Savings Account to your Checking Account for any reason (Overdraft protection, etc.) You will find any excuse to take money out of your Savings Account.

Didn't know you could do that but now that you mention it thats a good idea. I have my CC linked for overdraft prevention though.

I have a job that offers 401(k) and have taken the maximum amount that the company will match out of my paychecks to go into that account; the difference between that and 10% of my gross paycheck is then sent to a savings account. I also have my own mutual fund investments that I pay out myself for posterity's sake as something more accessible and stable than the 401k money, but more volatile than the slow steady gain of the savings account. I've been doing this for at least three years, maybe a little longer, and have enough saved that I could live at "full steam" without my current job for close to a year if I liquidated it all (3 months on the savings account alone).

Saving isn't really hard, you just have to budget it into the rest of your expenses. Agree that paying off CCs isn't a bad thing though, but it's advisable to keep one running with a very low balance (so interest doesn't hurt so bad); this helps feed your credit rating in a sort of roundabout way.

Well my CC is basically classes I didn't have the money for at the time (dumping 3k for classes at the start of the semester will do that) and I have about 1k to pay off on it then its done. I will keep it active as it is my "oh shit" button when I don't have cash.

How is your mutual funds doing? I am new to all this and know very little, what I really want to find out is the benefits of each type of savings account/fund ect and find the one that fits me best for the best return on investment.

[foopy]

while there are many many advantages for using a roth over a traditional, i feel many people gloss over the pros and cons and simply see 'tax free when you take out the money' and immediately go for that.

the main difference between the two is when you get taxed. roth gets taxed today, traditional gets taxed when you take the money.

by using a traditional, you avoid taxes TODAY, you get more money TODAY. which i'm sure anyone who is saving for a house, car, repaying student loans, etc etc etc could really use.

when you pull the money out when you're 65 (if you even get that far along, hello 2012 or return of christ), your income will mostly likely be fairly low (because you're retired) so when you DO get taxed, it won't be a lot. if you do make a shit ton of money and have to pull out of the IRA at a high tax rate, so what? you're making a lot of money! great success!

tl;dr: traditional IRA puts more cash in your pocket today. if you deposit $3k, i'd guesstimate you'd get back 700-1000 bux. that's not chump change!

[Cephius]

If you're looking for steady long-term growth, mutual funds will probably come out on top over (almost) anything else. Now is a good time to invest, since many stocks took a very large dip during the recession. When they rebound you should get better-than-average growth for a few years.

I'd advise going to a TD Ameritrade office or similar investment firm to get a better list of options for types of funds you can invest into.

And yes, it helps if you make it as difficult as possible for you to withdraw money from a savings fund. I have a checking account linked to a debit card that I keep as spending money, everything else goes into a 401k, savings account, and mutual fund that I never take money out of.

[Kaludneisucks]

I dont know how much you make but if you can manage to squeeze 5-6oo$ a month into your savings account, keep it there, then deposit as a lump into your ira/roth near season end, leaving you money thru the year should need arise, and also surplus after your 3k deposit at years end.

[Heavencloud]

Dead-end is not the position in the company but the company itself has no higher positions except a manager which makes 1 dollar more an hour but is worked 3x as much and thats pretty much it.

This sounds exactly like my part time retail job lol, journeymen clerks earn 45 cents less than a 4th position manager (both are like $16/h) and its wayy less stressful.

[Kerberoz]

Pretty sure that "carrying a balance in your cards raises your credit" is a myth, and you only need to use the card every billing cycle to get credit bumps from it.

[Norellicus]

Pretty sure that "carrying a balance in your cards raises your credit" is a myth, and you only need to use the card every billing cycle to get credit bumps from it.

Two of my high school teachers kept their cards perpetually paid off, anytime they'd use it (which they did often for the mileage points or whatever) they'd immediately pay it back for an effective balance of 0. They were denied limit increases year over year.

If the bank isn't making any money off your use of that card at all, and are even having to pay back out via the rewards, they have no incentive to give you more room to work with. Low limits = lower score.

Keeping a balance that you simply pay low also puts details on file about your payment habits, which puts other creditors' minds at ease that you will pay them in a timely fashion.

[miokomioko]

If you're employed, open a Roth IRA. That's all there is to it.

[Kayos]

when you pull the money out when you're 65 (if you even get that far along, hello 2012 or return of christ), your income will mostly likely be fairly low (because you're retired) so when you DO get taxed, it won't be a lot.

I agree with most of what you are saying. Roth is more desirable, but you should have some mix of traditional in there as well. I don't fully agree with this statement though. You may be retired and have a fairly low to no income at 65, but that doesn't mean you won't pay a lot of taxes on the money.

You have to factor in capital gains, interest, and dividends as well. If you were contributing consistently to your 401k for all those years, the taxes could still be pretty big. Also, Roth will always beat traditional in growth over the same lifespan, since you won't have to pay taxes on any of the earnings. Meaning, if I put $1000 a year into a Roth for 50 years, and I put $1000 into a traditional for 50 years, at the end after all taxes are taken out, the Roth will win every time.

[foopy]

I agree with most of what you are saying. Roth is more desirable, but you should have some mix of traditional in there as well. I don't fully agree with this statement though. You may be retired and have a fairly low to no income at 65, but that doesn't mean you won't pay a lot of taxes on the money.

You have to factor in capital gains, interest, and dividends as well. If you were contributing consistently to your 401k for all those years, the taxes could still be pretty big. Also, Roth will always beat traditional in growth over the same lifespan, since you won't have to pay taxes on any of the earnings. Meaning, if I put $1000 a year into a Roth for 50 years, and I put $1000 into a traditional for 50 years, at the end after all taxes are taken out, the Roth will win every time.

i've said there are many many advantages that a roth has. my key point was having additional cash in your pocket today.

also, you seem to be a bit mistaken about how IRAs are taxed. though it could simply be your wording. to clarify, you do not pay any taxes on any growth. you seem to imply that you have to pay taxes on the growth each year of a traditional, which in turn will reduce the lifetime yield. that is not correct. a roth and a traditional will grow at the exact same rate. they only differ because one is taxed when you put in, and the other when you take out. neither of them have any tax implications during the 'growth phase'.

really it comes down to having more funds available TODAY, at the cost of having less available when you retire. and that difference can be accounted for by simply seeing the tax hit you will take when you retire won't be so bad (lower income, lower tax bracket, lower tax), and if you DO face a position where you have to pay a shit ton of taxes (and where a roth would REALLY shine), congrats! you're rich.

[Kayos]

also, you seem to be a bit mistaken about how IRAs are taxed. though it could simply be your wording. to clarify, you do not pay any taxes on any growth. you seem to imply that you have to pay taxes on the growth each year of a traditional, which in turn will reduce the lifetime yield. that is not correct.

Yes I agree my wording was a bit ambiguous, and no I didn't mean that you pay taxes on growth each year for a traditional. Obviously you pay taxes when the money is pulled out. But since the money will have grown in the account, all earnings will also be taxed at normal income when pulled out. With Roth on the other hand, pay the taxes up front, and any earnings will not be taxed when taken out, as you mentioned.

a roth and a traditional will grow at the exact same rate. they only differ because one is taxed when you put in, and the other when you take out. neither of them have any tax implications during the 'growth phase'.

I understand what you are saying, but let me clarify my point. If the rates of return on both investments are the same, then yes they will grow at the same rate (if the same amount is invested in each).

Yet even with this, if everything was the same I would still recommend a Roth to those that qualify. It is not like the investments are only growing when you contribute to them, by the amount contributed. With even an average rate of return they will grow significantly over a long time period. And with a traditional, all this growth will be taxed...

I do agree with you on the more money now versus later argument though. Depends on if you need the additional cash in your pocket today or not.

[Rhyis.]

I first read the title as "Planning to save the future".


Carry on.

[Kaylia]

I first read the title as "Planning to save the future".


Carry on.

I came here for the same reason. I was expecting a time traveling discussion.

[Aerides]

There's really no one thing to do:

A) get out of debt as quickly as reasonable
B) have enough savings on hand to support yourself for an emergency/job loss/major car issue etc. For most ppl these days the guideline is 6 mos. salary. Look to online banks (everbank, ally, etc.) for better interest rates. Sure, today that means 1.4 instead of .25 so no big deal, but a few years ago that was 4.0 instead of 1.2. Online savings accounts don't often come with an ATM card either so it's not like you can roll up to the window and pull it out at 2am just cause. But you can easily transfer to your checking bank in 2-3 days or write a check.
C) If your employer has any 401k w/match - do it to at least the max you can match, pre tax (can't touch it without penalties, but this is what retirement savings is for).

Ok - once you've done those, if you still have more to stash away:

D) Roth/IRA's - invest with post-tax dollars, save for retirement outside of your employer plan. Traditional a little different, but probably the last thing you'd bother with now.
E) Get a financial planner to work out the rest.

[foopy]

i think we're on the same page kayos. its just the fact that roth's are now so highly praised, the benefits of a traditional are overlooked, when in many situations, cash now outweighs more cash 40 years from now. i just wanted to emphasize and highlight that point.

to give you an extremely exaggerated example, but one that still illustrates my point:

would you want a $10M bux in your hands today, right this second vs. a $10B check when you turn 65. even in this stupid scenario, i'm sure people will disagree with which is right. it comes down to personality.

a roth is fantastic, a roth is awesome and gives you blowjobs and rusty trombones. but only when you're 65.

[Kayos]

Yeah you are right, dunno if I am too worried about receiving blow jobs at 65. Give me the a hand job now and i'll be happy.

Yeah I agree that Roth's are seen as the be-all/end-all of investing, but in reality you should be diversified in how you invest, as well as your actual investments.

It is really all about your disposable income. If you have a lot of it, then cash now really isn't an issue. If you are struggling to get by, by all means keep that extra cash now, while still contributing as much as you can.