I guess this is as much an advice thread as a discussion.
I'm 22, and everything I've read says that I should start saving sooner, rather than later for retirement, even if it's just $100 a month, that can turn into big savings later in life. To the other 25 and unders on the board, what are you all doing to save for retirement?
I make just over $12K a year, working a part time job while going to school. I don't make much, I have maybe $600 a month to pay in bills, and the rest I either spend, or save for school costs. $100 a month would be something like 10% of my yearly salary, how much should I be putting away, and what should I put it into? Should I be calling one of those big investment houses like T Rowe and Schwab to ask for advice and trust them with my tiny bits of money?
What about something simpler? It's almost twice what I get now at my credit union in interest, and it's much easier to put away, and to access if there's an emergency, than mutual funds and such.
People my age: What are you doing? People older than me: What do you think I should be doing?
Posted by MightyCow (Member # 9253) on :
For long term, a diversified stock portfolio is generally considered your best bet. For simplicity sake, a market index fund or spider, which represents many different stocks in a sector, so is automatically somewhat diversified, is a good starting place.
I used to use Sharebuilder, an online stock trading company, which specialized in long term investing by allowing you to make regular, monthly purchases of stocks with a very low fee.
With your low income, a Roth IRA would also serve you well. With a Roth IRA, you pay taxes on your income now, but when you withdraw the funds many years from now, they are Tax free. This is well suited to people with currently low income, as you're already paying little to no tax, but hopefully in the future you'll be making scads of money, and will get to save on the much higher bracket you'll be in when you cash in your Roth IRA investment.
Posted by AvidReader (Member # 6007) on :
Lyr, I'm pretty sure no one really expects you to start saving for retirement until you get a full time job. College is expensive, and you have enough to worry about for now.
After you graduate, your first priority should be putting back six months living expenses. After that, you can start on the whole retirement thing.
If work offers you a 401(k), take it. The money comes out of your paycheck so you don't even have to see it or do anything with it. It's automatic. Plus a lot of places match your contribution.
I love my savins account with ING, too. I set up an automatic plan and it comes out without my thinking about it. It's after tax, so the savings aren't as great long term. But I'm like a squirrel - I stash my money in lots of different places. Plus, your 401(k) you can only change at certain times. I can turn my ING account on and off when I need and change the amount when I want.
Posted by Primal Curve (Member # 3587) on :
Do you have an emergency fund (at least 2 months worth of rent, bills and food in the bank)?
Are you accumulating school debt?
Posted by El JT de Spang (Member # 7742) on :
I have a simple IRA and a 401(K). Although at present I'm only contributing to the 401(K) (because my employer matches a certain percentage of my salary.
My goal for the next few years is to max out my 401(K) contributions (15 grand a year). I can do it, but it'll mean eating a lot of bologna sandwiches. Win/win scenario, in my book.
Posted by Primal Curve (Member # 3587) on :
quote:Originally posted by El JT de Spang: My goal for the next few years is to max out my 401(K) contributions (15 grand a year). I can do it, but it'll mean eating a lot of bologna sandwiches. Win/win scenario, in my book.
$15,500 next year.
Posted by Stephan (Member # 7549) on :
Emergency cash first, major debt second, retirement third in my opinion.
I also second ING for at least that emergency cash, it is a federally insured bank and is currently earning 4.5% interest. No fees, no minimums. In fact if myself or Avidreader sends you an email for you to use to sign up, you get $25 and either one of us would get $10.
Posted by Tresopax (Member # 1063) on :
I'd recommend figuring out how much you can save (a set amount each month) and then dividing that into three parts:
1. First pay back any credit card debt you have. Credit card debt usually costs 10-20% in interest, so consider that to be an easy 10-20% investment.
2. Once you pay back all your credit card debt, then set aside part of your savings in an interest-bearing account like the one you linked to. This is for money that you may need in 0-5 years. You can get about 5% interest on this, but that is lower than what stocks will normally give, and you will have to pay taxes on it. The good news is that you have easy access to it if you need it. The bad news is that this is not a long term investment, and interest rates will probably go down if the Fed starts lowering rates.
3. Put the remaining savings into a Roth IRA of some sort - possibly investing it in a broad index fund like the Vanguard 500. You can probably get a 7% return in the long run on that, and it won't be taxed as it accumulates and it won't be taxed when you take it out. Put as much as you can in this, but remember that you won't be able to take any earnings out for many many many years. You don't need a big investment house to do this, although you could choose to use one if you have no idea what to do.
A couple of other notes: * Remember that inflation is 3-4%. That means that if you "invest" money in a bank account that pays less than 3% interest, you are slowly losing money over time, even though it says your account is going up. It is NOT a long-term investment. *Remember that a 1% difference in interest is huge over 30 years. 7% will earn you far more in the long run than 5%. And 5% will earn you far more than nothing. *Remember that eventually you'll have to save. Your savings will earn much more if you do it now, rather than wait until later.
Posted by Libbie (Member # 9529) on :
I'm 26. We were saving for retirement, but I decided to start a new career, so most of the money we were diverting that direction has gone into business startup stuff. Next year we'll be back to saving.
It is very important to start saving now. Like Tresopax said, even a small difference in interest percentage will be a huge help later down the line. In fact, all of Tresopax's advice is great. It just about sums up what we'll be doing from 2007 onward.
Posted by Jhai (Member # 5633) on :
One option as a student is to take out more loans than you actually need - if you're careful with money. Most students have access to loans that are either interest-free while you're in school, or have very low interest - lower than the market level. And you don't have to start paying off the principal until you graduate. If you can take out these loans, then plow them back into low-risk or no risk investments, then you can make a pretty penny while in school. Just be sure to pay off the entire loan as soon as you exit school.
Don't worry too much about putting money into retirement right now, if you're still in college. The whole point of college is that you're expending money right now in order to have higher earnings in the future. As soon as you get out of school, though, try to keep living like a student until you've built up a good savings for emergencies, and you're matching your employers contribution's to your retirement fund.
If your college offers an investment class (ours is titled "Investment Analysis and Portfolio Management"), then you might consider auditing it - that's what I'm doing next semester. While the class may be slightly more theoretical than you need, you will learn a lot about financial ins and outs that will be helpful in managing your money in the future.
Posted by Artemisia Tridentata (Member # 8746) on :
The old (and still wise) rule of thumb is "Until you are 30 invest in yourself." Money put toward education and career advancement will pay over time. There will be time to start investing in other things after you have put some time and money into becoming the best you can be.
Posted by rivka (Member # 4859) on :
quote:Originally posted by Stephan: I also second ING for at least that emergency cash, it is a federally insured bank and is currently earning 4.5% interest. No fees, no minimums. In fact if myself or Avidreader sends you an email for you to use to sign up, you get $25 and either one of us would get $10.
Or me.
I love ING.
Posted by twinky (Member # 693) on :
I'm 25 and will be 26 in a few months. I started my Registered Retirement Savings Plan, which I believe is the Canadian equivalent of a 401(k), when I was 19. However, I was in something of a unique position because of my choice of university -- engineering at the University of Waterloo is a co-op progam where you alternate four-month school terms with four-month paid work terms. So I was earning income during school, and because my parents were helping me as well, I managed to get through with no debt and a small nest egg in my RRSP.
When I started working, I immediately signed up for the company RRSP, which matches a significant percentage on my contributions. I also continued contributing to my personal RRSP, and in my first year of work I maxed out both my total RRSP contribution limit and my one-time "overcontribution" limit. Right now I've slowed down on the personal end of the RRSP to rebuild my emergency fund, which mostly went into body work for my car after an accident.
I don't know what your tuition or debt load are, which as others have noted are a major factor in when and how you should save. My opinion on what you should do is basically the same as what others have said: tuition, bills, debt, and an emergency fund should be your first priorities, and if those priorities are met, then tax-deferred retirement savings come next.
Posted by Destineer (Member # 821) on :
If you don't have a lot of time to spend on investing, I recommend picking an index fund and going with the Vanguard Group. Vanguard's strategy is to keep fees and overhead low, and pass those savings on to the investor. More reliable, I think, than aggressive attempts to beat the market.
Posted by scholar (Member # 9232) on :
If you are military or a military brat, USAA gives good advice and their accounts have made decent money for me.
Posted by jeniwren (Member # 2002) on :
If you qualify for a 401k, and especially if your employer has matching benefits, at the very least max out your withholding to the match. In other words, if your employer matches a percentage of your 401k investment up to say 6% (that's the most I've ever had with an employer), have at least 6% withheld. That's free money you're otherwise just throwing away.
If you don't qualify for a 401k, attempt to go with a 80-10-10 plan. Live on 80%, invest 10% (go with a ROTH, unless you have no savings -- if you have no savings, try to work toward having a $1000 liquid, then start putting toward your ROTH), and give 10% away. If you go to a church, your church gets 10%. Otherwise, pick a charity you believe in and give your money there. I know that's hard for most people, but so far, I've never known anyone to lose by it. Honoring that all we have is still more than many in the world makes us appreciate what we have that much more. There's more to it than that, but it's a start.
I think it's so cool you're doing this. At the same age, I put toward a 401k, but found it "impossible" to put to more conventional savings.
Posted by skillery (Member # 6209) on :
quote:Originally posted by Stephan: Emergency cash first, major debt second, retirement third in my opinion.
I wholeheartedly agree. And I would add that it's better to pay off a mortgage than to pump money into a retirement account. Even with employer matching funds, the earnings from a retirement account after taxes and possibly tithing will be less than what you would save in interest by paying off your mortgage and other debts early.
Also consider that most people are dead within five years of retirement, if they live that long. And somebody else will get all that money you saved.
Financial institutions want you to have a mortgage, and they want you to have savings because that is how they make money. Why pay the bank twice by trying to do both at once?
Posted by Stephan (Member # 7549) on :
quote:Originally posted by skillery:
quote:Originally posted by Stephan: Emergency cash first, major debt second, retirement third in my opinion.
I wholeheartedly agree. And I would add that it's better to pay off a mortgage than to pump money into a retirement account. Even with employer matching funds, the earnings from a retirement account after taxes and possibly tithing will be less than what you would save in interest by paying off your mortgage and other debts early.
Also consider that most people are dead within five years of retirement, if they live that long. And somebody else will get all that money you saved.
Financial institutions want you to have a mortgage, and they want you to have savings because that is how they make money. Why pay the bank twice by trying to do both at once?
It depends on the interest rates in my opinion. Mortgage rates are typically around 6% still for fixed 30 year loans. Other then your emergency cash, no bank will give you that interest rate so if it is savings account or mortgage, the mortgage is not a bad idea.
Now long term investments do typically get at least 7%. With the tax breaks on the retirement accounts AND the mortgage interest deduction I think that is not a bad investment either to keep your mortgage. But it is riskier.
Posted by Flaming Toad on a Stick (Member # 9302) on :
quote:Originally posted by twinky: However, I was in something of a unique position because of my choice of university -- engineering at the University of Waterloo is a co-op progam where you alternate four-month school terms with four-month paid work terms.
Small world. I was accepted into the very same program, but decided to go to Windsor instead. Cool.
Posted by Lyrhawn (Member # 7039) on :
quote:Originally posted by Stephan: Emergency cash first, major debt second, retirement third in my opinion.
I also second ING for at least that emergency cash, it is a federally insured bank and is currently earning 4.5% interest. No fees, no minimums. In fact if myself or Avidreader sends you an email for you to use to sign up, you get $25 and either one of us would get $10.
I have enough in savings to pay my bills for a month, and a little bit into the next month, should something happen or should I lose my job, which isn't likely, unless the meeting about my getting a raise goes badly tomorrow.
As for debt, I owe about $3,000 on my car, which will be paid off next October (or sooner, I'm starting to make bigger payments than necessary in the hopes of getting it paid off), $500 in credit card debt (at 10% interest), and around $1,500 in another loan I got from the credit union that I pay monthly (also 10% interest). I also have $7,000 in school loans, but don't have to pay that back until I graduate.
For the near term, would it just make more sense to protect my little emergency fund, and just plow any extra money into killing off these debts? It seems to me to make little sense in putting money in an account or fund that yields anything less than 10% if I'm going to be paying that much on my debt anyway. I could have all these debts paid off by the end of next year (with the exception of my school loans, and hopefully I'll only be a stone's throw away from graduating at that point), and then have much, much more income to direct to savings.
Posted by erosomniac (Member # 6834) on :
All I will contribute to this thread is:
DO NOT start saving anything for retirement until you are 100% debt free.
The only scenario I can think of where it makes sense to save/invest any money when you are in any sort of debt is if you have an extraordinarily high yield investment opportunity that is a sure thing, or are much more knowledgable than average about investing. And even then, it only makes sense to me if you intend to use any investment profits to immediately pay off said debt.
Debt is anti-saving. If you have it, any saving you do is losing you money.
Posted by BannaOj (Member # 3206) on :
Erso I disagree. Should I not use my company's 401K program because I have $2,000 on my credit cards?
It would be rediculous to not start my 401K regardless of my credit card, especially when you include the tax breaks. Now there's a threshold on credit card balances (around 5K) where the reverse would begin to apply but you have to look at both sides of it.
AJ
and I don't know if you are including home ownership in "debt" or not, but that is another case where the big picture needs to be looked at.
Posted by Dagonee (Member # 5818) on :
quote:For the near term, would it just make more sense to protect my little emergency fund, and just plow any extra money into killing off these debts?
Yes. It doesn't sound like a 401k is an option for you. If it were, you'd need to look at the match.
Is interest accumulating now on the student loan?
BTW, you're doing very well, and if you can really pay off all that debt non-student without taking more, you'll be doing fabulously - well positioned when you graduate to start saving for retirement and creating a sound financial foundation.
Posted by Javert (Member # 3076) on :
My job offers a TIAACREF, and they match whatever I put in, so I jumped on that. And my parents, much to my chagrin, are paying my student loans.
Question: Should I get a credit card? I don't see that I need one, and I've never had one. Thoughts?
Posted by Dagonee (Member # 5818) on :
Not if you don't need one.
If you're worried about establishing credit, get one with a low limit your last semester, when it is easier to get a credit card. Use no more than half the limit - preferably less - and pay it in full every month.
Posted by Lyrhawn (Member # 7039) on :
quote:Originally posted by Dagonee:
quote:For the near term, would it just make more sense to protect my little emergency fund, and just plow any extra money into killing off these debts?
Yes. It doesn't sound like a 401k is an option for you. If it were, you'd need to look at the match.
Is interest accumulating now on the student loan?
BTW, you're doing very well, and if you can really pay off all that debt non-student without taking more, you'll be doing fabulously - well positioned when you graduate to start saving for retirement and creating a sound financial foundation.
Thanks Dag.
No, interest doesn't start accumulating on the loan until six months after I graduate. I won't graduate with a lot of school loans, as I'm a commuter at an in-state public university, I'll have at most $15,000 in loans, which I hope to pay off within five years of graduating. Maybe by that time they'll be some debt forgiveness I can take advantage of for teachers, but at the moment there's no advantages that I know of for social studies teachers.
Posted by scholar (Member # 9232) on :
I would get a credit card and then use it responsibly. You can pay it off every month and build credit and no interest cause you paid it off.
Posted by erosomniac (Member # 6834) on :
quote:Originally posted by BannaOj: Erso I disagree. Should I not use my company's 401K program because I have $2,000 on my credit cards?
It would be rediculous to not start my 401K regardless of my credit card, especially when you include the tax breaks.
Crunch the numbers. If your company has a phenomenal match program and/or an unusually high yield plan, then it is likely one of the "extremely high yield" investment opportunities I mentioned in my post. Given the average credit card APR is between 13 and 14% in the US, you have to have a pretty high match available and be on the tax bracket fence to justify starting your 401k a few months early rather than paying off a balance on your card, especially one as low as 2k. Remember that money deferred to a 401k is not tax-free, and the the assumption that you will save money because you will (theoretically) be in a lower tax bracket at retirement age is often a bad one to make.
quote:and I don't know if you are including home ownership in "debt" or not, but that is another case where the big picture needs to be looked at.
See what I said about high yield investments.
quote:Originally posted by Javert:
Question: Should I get a credit card? I don't see that I need one, and I've never had one. Thoughts?
If you feel you can use it responsibly - and really, you need to sit down and ask yourself whether you can do this. I and all my peers in high school were told to get a credit card and never exceed a set percentage of our limit and pay it off in full every month as an exercise in understanding and building credit, and I'm fairly certain that advice caused many people who would not have gotten credit cards otherwise to jump into enormous debt holes.
The lure of available credit is phenomenal; even people who have a thorough understanding of what credit is, how it works and why it's not a good idea to overuse it fall prey to the idea of swiping a piece of plastic to pay for things, and then not having to pay it back (right away--but that's the part that gets overlooked).
Posted by Stan the man (Member # 6249) on :
All I can say is that about 7 (I was 19) years ago I started a mutual fund account through a friend of mine who is a broker($50 bucks a month). A couple years later I started a individual stock account. When I have the cash, I throw some in. It's breaking even if not just a bit over the line. My real kicker is my Roth Ira I started a year later. I bought some unconventional stocks in that. Cigarettes. Evil as they may be, they are doing better than anything else I have.
Posted by skillery (Member # 6209) on :
Also, don't pay into your employer's 401K until you are 100% vested in the program. For most companies that will take about 5 years.
When it comes time for a reduction in force, the company considers the matching funds that they stand to recover from non-vested employees. You'll be among the first to go, and in the end, your skillful manipulation of your 401K will have profited your ex-employer.
Posted by Kasie H (Member # 2120) on :
I was lucky - I graduated a year early from school and my parents kicked me the money that would otherwise have gone to pay for my last year of college. I've used some of it to fully fund a Roth IRA for this year ($4,000) and also open up an individual investment account with TD Ameritrade (low fees, don't have to have huge balances, etc).
ETFs are basically mutual funds that trade like stocks, and they are cheaper for a multitude of reasons. I own mostly the ETFs recommended here and one of the mutual funds. But I diversified my portfolio as they recommended and in general followed their recommendations. I started all this in July, and so far the Roth is up about 12%. Not bad for a few months. Trusting the experts seems to be a good bet.
For my emergency fund, I've been socking away about 15 percent of my income in an HSBC direct savings account. It's got great flexibility and pays more than other savings accounts. And it has an ATM card so it's relatively easy to access.
Posted by Kwea (Member # 2199) on :
quote:Originally posted by Dagonee: Not if you don't need one.
If you're worried about establishing credit, get one with a low limit your last semester, when it is easier to get a credit card. Use no more than half the limit - preferably less - and pay it in full every month.
No...less than half no matter what, barring emergency. If you use half of your limit you get a hit on your credit...it hurts you more than getting the card helps sometimes.
It doesn't matter how MUCH you use, but how what PERCENT of you LIMIT you use. If you have a $3000 limit the first hit happens at $1500. If your limit is $500 it happens at $250, believe it or not.
Dag, I know you know this, we have had this conversation before in one of the mortgage threads, I believe. I know you were hinting at this, but I HAD to make it clear. I wish someone had told me how it worked at his age. Posted by Kasie H (Member # 2120) on :
Oh also, on credit cards - I use mine for just about everything because I like that it aggregates all of my purchases in one place. I also get airline miles, which is the main reason why I use it instead of my debit card.
But I always pay it off in full every month, and I view my monthly budget as the card's limit, no matter its actual ceiling.
Posted by Dagonee (Member # 5818) on :
Thank you for clarifying that, Kwea.
"No more" should definitely be "less than."
And, since few track their credit cards to the penny between bills, it should probably be significantly less than half for safety's sake.
The low limit suggestion is basically to limit the damage if he were to get careless - that's not related to the impact on credit reporting.
Posted by Nell Gwyn (Member # 8291) on :
I'm 25, and I'm nowhere near being in a position to save for retirement yet. My largest savings stash is devoted to my rent - I put my rent money aside in one of my ING savings accounts during the month and withdraw it at the month's end, but I leave the accrued interest in the bank.
And I agree with everyone who's mentioned it earlier that ING is teh awesome. So you can add me to the list of people who can send signup emails. Posted by Kwea (Member # 2199) on :
quote:Originally posted by Kasie H: Oh also, on credit cards - I use mine for just about everything because I like that it aggregates all of my purchases in one place. I also get airline miles, which is the main reason why I use it instead of my debit card.
But I always pay it off in full every month, and I view my monthly budget as the card's limit, no matter its actual ceiling.
This is another common mistake if you are trying to improve your credit score. If you pay it off every month IT ISN'T CONSIDERED CREDIT!
Sorry to shout, but this cost me two years of repairing my credit score about 10 years back. You HAVE to carry a balance or it doesn't get reported at all, and never benefits you. The balance doesn't have to be high...ANY balance, even $5, will work, but paying it all off simply doesn't work.
I use mine for gas. I keep about $20-30 on it when I pay my bills, and there is always something on it.....but at the end of the year I have only payed about $10 in interest, if that.
But my credit score is significantly higher because of the fact that I have active credit again, and I am always on time and pay more than the minimum.
Posted by BannaOj (Member # 3206) on :
Look I'm not saying it's wrong for everyone but blanket sweeping statments especially about financial matters don't always fit, even if many of them are very practical.
I just looked it up. My company gives matching funds for a 401K up to 5% so I contribute to get the maximum amount they give me. Even if I'm only 75% vested. If I waited until I was 100% vested (5 years) to start contributing I'd lose 10s of thousands of dollars. You always get *your* money back and will get some of their matching funds too even if they lay you off. My 401K rate of return was 18.5% which is far superior to my credit card interest rate at 9%.
We also bought a house before we paid off all our consumer, car and college loans. I don't regret it for an instant, the house has already appreciated 20%+, and if we sold it tomorrow it would cover all of our other debt and still leave us ahead... although this will vary by geography.
Posted by blacwolve (Member # 2972) on :
How do you establish credit without getting a credit card? Is it possible?
Posted by rivka (Member # 4859) on :
Yes. Buy a car or something else on credit. You may need a co-signer.
Lyr, all your student loans are subsidized Staffords?
Posted by Javert (Member # 3076) on :
quote:Originally posted by Nell Gwyn: And I agree with everyone who's mentioned it earlier that ING is teh awesome.
So, you think it's good?
*bites back comments about hating netspeak* Posted by Lyrhawn (Member # 7039) on :
quote:Originally posted by rivka: Lyr, all your student loans are subsidized Staffords?
I have subsidized Perkins loans.
Posted by rivka (Member # 4859) on :
But you said 6 months?
Perkins loans have a 9 month grace period, not 6.
Posted by Lyrhawn (Member # 7039) on :
You're right, it IS nine months.
I was confused.
Posted by erosomniac (Member # 6834) on :
quote:Originally posted by blacwolve: How do you establish credit without getting a credit card? Is it possible?
Yes. Anything involving a credit check - the easiest to obtain is a contracted cell phone - gets reported and helps build credit.
The big one for a lot of people is student loans. Even if your parents are paying them for you, the federal loans are in your name, and they build your credit FAST.
Posted by rivka (Member # 4859) on :
quote:Originally posted by Lyrhawn: I was confused.
And apparently it's contagious. Posted by scholar (Member # 9232) on :
I have very high credit and I pay off my cards every month. What I was told was that it was the percentage currently on it, so it fluctuated depending on what day they asked. I might have a thousand dollars on it right before I paid it and that would be what was on the paperwork or nothing if I paid it all off. Also, don't get have lots of credit. Unused credit looks bad too- like you are planning on debt in the future. When we got our house, that was the only negative they could find- we had a few cards that we had never used and had forgotten about. Another benefit to Roth is I think you can take that out for first home or educational expenses. We didn't but that was an option I seem to remember discussing. Another isssue is security. For me, I would rather have money in an emergency account then have my car completely paid off. While you can rebuild and in the end have even more money after X amount of time, I worry about not having an emergency for x amount of time. You also have to have enough discipline to rebuild the account.
Posted by Lissande (Member # 350) on :
For the people saying not to save for retirement if you're "in any kind of debt" - does that include a mortgage, or is it talking more about consumer or school debt?
If both of us are healthy and working (and excluding any large pay increases or cuts), we can pay off our mortgage in 15 years making double payments. If we have children and lose my income, which we intend to do, we'll pay it off just in time to retire. Is it still better to funnel extra money towards housing and hope to still be alive to save for retirement afterwards?
Posted by Nell Gwyn (Member # 8291) on :
quote:Originally posted by Javert: So, you think it's good?
Indeed I do. My ING savings account changed my life. Everyone needs one! Get it now! [/salesperson]
quote:*bites back comments about hating netspeak*
So do I, which is why I use it very seldom, and usually in a somewhat tongue-in-cheek fashion. But in my view, it's not as annoying as IM abbreviations, e.g. "u" for you, "gr8" for great, etc.
Posted by krynn (Member # 524) on :
so many replies that i dont have time to read them all, so if i say something thats already been stated, sorry.
im 23. i also work part time and go to school full time. i have 2 things going for me at the moment for saving for retirement.
1. RothIRA - these are great and non-taxable. my dad thinks these will be very important for ppl our age when we get older. also the cap allowed per year is steadily increasing. so far i've put the max in every year for a few years now.
2. investing for the long term. i have some mutual funds as well. these are good imo cuz i dont have to take too much control over them and they seem to do fairly well. usually there is a minimum amount for brokers to start one of these thingies with u... so it might be a goal for u to save enough now and when u get out of school to start one.
also, when u do get a career, u can have X amount from each paycheck go to a retirement fund, like a 401-k. that woulpd also be a good idea. i would think the rothIRA would be the best for u know tho, but i have no idea how much money u need every month. also with the 401-k, a lot of employers will match up to something like 3% of what u put into it. so when u do get a career, at leastr try to add the max amount that your company will match every year.
hope this helped some. gl to u.
EDIT: ok i just read thru a couple and noticed a good point. if u do end up using some of your "saved" money for things, u really need the discipline to replace what money u took out. ive had that problem a couple times and i regret it.
Posted by El JT de Spang (Member # 7742) on :
I agree with the gist of eros's statement about being debt free before saving, but I'd add a few caveats.
1) If you can afford to buy a house and are planning on staying there at least 5-7 years, I think you'd be silly not to do so, except in extreme circumstances.
2) I would always take advantage of employer's matching contributions to your retirement, even if I currently had debt I could pay down instead. It's an immediate 100% return -- you simply can't beat that.
Otherwise, credit card debt needs to be eradicated first and foremost before you start saving seriously. Car loans and student loans can stay.
Posted by cheiros do ender (Member # 8849) on :
I'm 17. Can't save right now. Gotta pay for driving lessons. And a car. And licensing. And registration. And insurance. And petrol (gas). Government really doesn't want poor people to drive.
No doubt I'll have another excuse when this is all settled.
I'm pretty sure long term saving is pointless if the interest gained on it in a year is below the inflation level. Not sure $100 a month would cover that.
Posted by rivka (Member # 4859) on :
quote:Originally posted by Nell Gwyn:
quote:*bites back comments about hating netspeak*
So do I, which is why I use it very seldom, and usually in a somewhat tongue-in-cheek fashion. But in my view, it's not as annoying as IM abbreviations, e.g. "u" for you, "gr8" for great, etc.
Agreed on both points.
quote:Originally posted by El JT de Spang: Otherwise, credit card debt needs to be eradicated first and foremost before you start saving seriously. Car loans and student loans can stay.
Student loans tend to have low interest rates and various other reasons why paying them off is not as urgent as other debts, so I agree with that. But car loans? They're NOT secured debts, especially not after the first year or so, nor are they investments. And the interest rates are often ridiculous. I would absolutely pay them off before worrying about saving. Mortgages are a different story, especially if you have a low interest rate
Posted by El JT de Spang (Member # 7742) on :
I've always gotten pretty decent rates on car loans. 7% is the worst I think I've had. Not great, but every investment I have gets better returns than that.
Posted by rivka (Member # 4859) on :
Lucky you.
Even so, they are unsecured debts.
Posted by mackillian (Member # 586) on :
*stabs student loans*
Posted by skillery (Member # 6209) on :
Your disposable income won't start to skyrocket until your late 40's. Until then you've got kids to raise, homes to furnish, and mortgages to pay. You need all that money now when you're young. Why put it out of your reach in a 401k?
You'll have plenty of money to save when the kids are gone, and the house is paid off.
Aside from medical expenses, how much money does it take to keep an old fart in a rocking chair alive?
Oh, and reliable transportation is also a good investment.
Posted by Dagonee (Member # 5818) on :
quote:Your disposable income won't start to skyrocket until your late 40's. Until then you've got kids to raise, homes to furnish, and mortgages to pay. You need all that money now when you're young. Why put it out of your reach in a 401k?
I have some calculations I use to demonstrate the problems with this premise. I'll try to post them later.
Posted by El JT de Spang (Member # 7742) on :
quote:*stabs student loans*
That's your solution to everything.
Posted by blacwolve (Member # 2972) on :
I'm confused. Is there any particular reason so many people have credit cards. I don't right now (I use my debit for everything) and I don't see why I would get one in the future. Is there something I'm missing?
Posted by Primal Curve (Member # 3587) on :
quote:Originally posted by Dagonee:
quote:Your disposable income won't start to skyrocket until your late 40's. Until then you've got kids to raise, homes to furnish, and mortgages to pay. You need all that money now when you're young. Why put it out of your reach in a 401k?
I have some calculations I use to demonstrate the problems with this premise. I'll try to post them later.
Like the Rule of 72?
For those that don't know, take 72 and divide it by interest earned in whole numbers. This will give you a very good approximation of how many years it will take for your account to double in value.
For example, if I put money in my 401k plan, and it earns an average of 6% per year (mine is cranking away at 14% right now, but I'm being somewhat conservative). 72/6 = 12. In 12 years, my initial investment will double in value.
That means that, if I were to put a decent amount of money away now, my money would double by the time I'm 38. If I keep that up, with daily compounding gains (which almost all 401k plans have), I could see it double in value every 10 years.
And that's just speaking in general terms. As a young investor, I can pump money into some really risky, long-term investments and see a much better than average gain (like I said, I'm getting about 14% this year... last year, the developing market funds saw gains in the 20s and 30s). I should be seeing my account double in value every 5-7 years.
Screw not putting money into a 401k. If you have a decent employer with a nice, short vesting schedule (mine is 100% immediate), you see in INSTANT doubling in value (if your employer matches dollar-for-dollar). If they have a vesting schedule, you're still getting the match. If you wait out the vesting, you'll get all of the money the employer put in during that time- well worth the long-haul.
Posted by BannaOj (Member # 3206) on :
Hey that's a cool rule Primal... I'll keep it in mind.
AJ
Posted by Primal Curve (Member # 3587) on :
For those that want the accurate formula for the Rule of 72...
code:
n = (ln2)/(ln(1+i))
Where n is the period needed for the account to double and i is the assumed interest rate.
Posted by pH (Member # 1350) on :
quote:Originally posted by skillery: Your disposable income won't start to skyrocket until your late 40's. Until then you've got kids to raise, homes to furnish, and mortgages to pay.
Unless you have children at 37 and 47, like my parents.
'course, my 68-year-old dad seems to have no plans to retire at all...
-pH
Posted by erosomniac (Member # 6834) on :
quote:Originally posted by blacwolve: I'm confused. Is there any particular reason so many people have credit cards. I don't right now (I use my debit for everything) and I don't see why I would get one in the future. Is there something I'm missing?
There can be any number of reasons:
Building credit has already been mentioned.
Credit cards are an easy-to-obtain failsafe in case of emergency: if you don't have 4 or 5 thousand dollars saved, a credit card can make a serious difference in determining whether you can afford major car, medical or other unforseen expenses.
Many credit cards offer a rewards and/or incentive program of some kind that encourages you to use the card instead of your debit card (although not me; my debit cards get 1% cashback on all purchases, which is worth way more to me than any stupid airline miles).
Some people like the ease of not having to closely track a check registrar, since your credit card statement gets mailed to you at the end of the month. Some people prefer the organization of paying one bill.
Some people prefer not to use debit cards because they're directly linked to your checking account.
Believe it or not, there are STILL some places that will not accept debit, even when it's run as credit.
There are inevitably more reasons; these are just the ones I can think of off the top of my head.
Posted by Primal Curve (Member # 3587) on :
Just checked my 401k (hadn't in a week or two)...
Make that 18% Posted by fugu13 (Member # 2859) on :
Also, credit cards are protected against theft (identity and otherwise) where debit cards are generally not. If someone uses your credit card, you're generally not liable (at least beyond a small amount), but it can be hard to impossible to fight debit card charges you didn't make.
Posted by Dead_Horse (Member # 3027) on :
My father sat us down when we were teenagers to talk about investing for the future. As a result, I would definitely start saving and investing as soon as possible. At this link is a chart showing the growth in value over time at various interest rates.
Consideration should be given to paying off high interest debt, of course. But assuming there isn't any, investing early and often will net you more than later. If invested correctly, you can even stop contributing to the fund after some time and still come out way ahead. Because of compounding, it is the early contributions that cause the large balances at the end of the program, not the late ones.
Some of my siblings did this, and some didn't. The ones who did were able to use some of that money to pay for their college educations and buy homes with cash when it came time.
Posted by skillery (Member # 6209) on :
quote:Originally posted by Dagonee: I have some calculations I use to demonstrate the problems with this premise. I'll try to post them later.
Do your calculations take into account the effect of inflation on durable goods that you might have acquired?
Do your calculations take into account the money those durable goods would have saved you.
How much money will you save if you choose to own a washer and dryer rather than gassing up the car to go feed quarters to the machine at Suds Your Duds?
How much money in doctor bills will you save if your kids don't have to crawl around on the dirty floor at Suds Your Duds?
How much money would you save if you weren't constantly paying for repairs on your lemon car, ancient furnace, and leaky roof?
How much money will you save if the money you didn't put into a 401k allows you to fill your pantry once a month rather than having to drive to Quicky Mart three or four times a week?
What good is all that 401k money if you have to live in cousin Bubba's double-wide?
Posted by El JT de Spang (Member # 7742) on :
There is plenty of room between "investing in your retirement early" and "living with your mom until you're 50".
Posted by Dagonee (Member # 5818) on :
Skillery, your questions are basically meaningless, because none of the parade of horribles you've made up is incompatible with retirement savings.
Posted by Primal Curve (Member # 3587) on :
quote:Originally posted by skillery:
quote:Originally posted by Dagonee: I have some calculations I use to demonstrate the problems with this premise. I'll try to post them later.
Do your calculations take into account the effect of inflation on durable goods that you might have acquired?
Do your calculations take into account the money those durable goods would have saved you.
How much money will you save if you choose to own a washer and dryer rather than gassing up the car to go feed quarters to the machine at Suds Your Duds?
How much money in doctor bills will you save if your kids don't have to crawl around on the dirty floor at Suds Your Duds?
How much money would you save if you weren't constantly paying for repairs on your lemon car, ancient furnace, and leaky roof?
How much money will you save if the money you didn't put into a 401k allows you to fill your pantry once a month rather than having to drive to Quicky Mart three or four times a week?
What good is all that 401k money if you have to live in cousin Bubba's double-wide?
Let's talk about pre vs. post tax money for a second...
A $100 contribution into a traditional 401(k) plan does not translate to a net loss of $100 per paycheck. You have to take into consideration the fact that 401(k) contributions are taken out on a pre-tax basis from your paycheck.
This means that your gross income is effected by the deduction. Which means you pay less in taxes. Which means you might actually net more money come year end (depending upon your tax bracket). Which means you can afford to buy your children shoes instead of making them out of cat gut and old tires.
I've seen enough people who live like that and still pay into a 401K to know that it's not made up.
It's not a question of one or the other, it's a question of which to do first.
Unfortunately the HR lady at the factory is going to persuade a lot of her peons to sign up for a 401K before the poor folks get their first paycheck.
And the bank will laugh all the way to the...
Posted by skillery (Member # 6209) on :
quote:Originally posted by Primal Curve: (depending upon your tax bracket)
You're assuming that contributing to a 401K before taxes somehow throws you into a lower tax bracket. The lady at Suds Your Duds didn't look like she was on the borderline between tax brackets.
Posted by El JT de Spang (Member # 7742) on :
Well, if that lady couldn't do it what hope is there that anyone could.
Posted by Primal Curve (Member # 3587) on :
quote:Originally posted by skillery: Unfortunately the HR lady at the factory is going to persuade a lot of her peons to sign up for a 401K before the poor folks get their first paycheck.
And the bank will laugh all the way to the...
First of all, banks don't provide 401k plans. They're typically provided by record-keepers and investment firms (TD Ameritrade, Fidelity, etc. etc.). The money has to be set into a custodial account seperate from the general assets of the company that provides the service.
Also, Judy McDoody, the HR Queen, is required by IRS regulations to promote the 401(k) plan to all employees who are not in a Collective Bargaining Agreement (Union). R-E-Q-U-I-R-E-D. Read me?
The concept is called "universal availability." The 401k plan cannot, by law, discriminate against certain employees. The plan has to go through compliance testing every year to ensure this. That means that, if the plan is not bein utilized by the other employees, the total contribution limit is decreased to make up for the fact that the plan is "top heavy".
That means that Joe Schmo the AR King who would normally be able to contribute $15000 into his retirement plan now can only contribute 3000 or even less because Judy McDoody didn't do her effing job.
Seriously, do you want to play this game? I work in the industry and I'll crush you.
Posted by Primal Curve (Member # 3587) on :
From the IRC §401(a)(4):
quote:A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section...
(4) if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees (within the meaning of section 414(q)). For purposes of this paragraph, there shall be excluded from consideration employees described in section 410(b)(3)(A) and (C).
Posted by Dagonee (Member # 5818) on :
quote:You're assuming that contributing to a 401K before taxes somehow throws you into a lower tax bracket.
No, his statement did not in any way depend on that assumption.
If you had simply said that people should not save retirement money in such a manner that causes them to spend money inefficiently, I wouldn't really care. But you suggested that retirement savings shouldn't start until the kids are grown and the house is paid off. And that's advice that can cost someone hundreds of thousands or even millions of dollars.
Posted by Swampjedi (Member # 7374) on :
I currently have 15% of my income going toward my TSP (civil service, kinda like 401k). I'm single living in an apartment, so I know that'll change. I do have student loans, but not many, and no credit card/car debts.
Posted by Amanecer (Member # 4068) on :
quote: This is another common mistake if you are trying to improve your credit score. If you pay it off every month IT ISN'T CONSIDERED CREDIT!
Sorry to shout, but this cost me two years of repairing my credit score about 10 years back. You HAVE to carry a balance or it doesn't get reported at all, and never benefits you. The balance doesn't have to be high...ANY balance, even $5, will work, but paying it all off simply doesn't work.
This is incorrect. Scholar is right, so long as the card is used it doesn't matter if you pay it off every month. A few months ago, both my bank and a school I'd applied to before alerted me that my identity information had been stolen from each one. I signed up for the Equifax Three-in-one monitoring service that allows me to see my credit report at any given time and alerts me of any changes. Like Scholar said, it reports how much I have on the card at whatever time they ask for the data. Carrying a balance is not reported and makes no difference. While the credit monitoring service is expensive, I've found it extremely educational. To any one who's considered paying for it, I would recommend trying it for at least a year just to see how everything gets reported.
quote: If you feel you can use it responsibly - and really, you need to sit down and ask yourself whether you can do this. I and all my peers in high school were told to get a credit card and never exceed a set percentage of our limit and pay it off in full every month as an exercise in understanding and building credit, and I'm fairly certain that advice caused many people who would not have gotten credit cards otherwise to jump into enormous debt holes.
I agree that knowing yourself is important in this area. But I have had the exact opposite experience with credit cards. In high school, my peers and I were encouraged to get credit cards and pay them off every month. It's now my senior year in college and I have an extremely high credit score solely because of this approach. My other friends from high school that I've talked to about this have had the same experience. If you have the self-discipline to pay it off every month, I strongly encourage getting a card.
Posted by skillery (Member # 6209) on :
quote:Originally posted by Dagonee: And that's advice that can cost someone hundreds of thousands or even millions of dollars.
quote:Originally posted by Primal Curve: Sheesh. Hyperbole at work.
So it's in HR's (and the $13000/year crowd's) best interest, in order to prevent a top-heavy situation, to sign up as many peons as possible, regardless of their double-wide and Suds Your Duds status.
Posted by Amanecer (Member # 4068) on :
It's in the peons' best interest, regardless of their double-wide and Suds Your Duds status. I can't believe you're actually advocating that saving for retirement is a bad idea. Do you just want everybody to rely on Social Security or something?
Posted by skillery (Member # 6209) on :
quote:Originally posted by Amanecer: I can't believe you're actually advocating that saving for retirement is a bad idea.
Because retirement is a myth. At no time in the history of man, up until the close of WWII has there been such a thing as "retirement." And as I've already stated, most people are dead within five years of achieving that status. There is no historical proof that the concept is viable.
Saving for old age benefits mainly the health care industry in supporting elevated medical costs, and financial institutions ("I'll crush you) that skim their share off the top of whatever the peons manage to scrape together, and Uncle Sam who fills his pockets from death taxes.
Put the money in your pocket and there will be no doubt about who the beneficiary is.
Posted by Dagonee (Member # 5818) on :
No, it wasn't hyperbole.
If you save $100 a month and earn 8% a year, you will have $149,036 after 30 years. If you do that for 10 years less - 20 years - you will only have $58,902. Note that if you double your contributions for those 20 years, you'll still only $117,804. In other words, you'll have put in $12,000 more, but still have some $31,000 less.
That's a difference of $90,134.
Now, imagine you stop saving after 10 years but wait another 20 before retiring. You have a total of $90,623 - $31,721 less than you would have had after saving twice as long but 10 years later.
Saving early is simply smart.
Posted by Dagonee (Member # 5818) on :
quote:Put the money in your pocket and there will be no doubt about who the beneficiary is.
I agree. I just like to keep my pocket in a nice little fund earning 8% or more.
Posted by skillery (Member # 6209) on :
quote:Originally posted by Dagonee: ...you will have $149,036 after 30 years
...provided a stable rate of return.
...provided that those numbers on paper are still worth something after somebody engineers an inflationary crisis such as a war to return the real value of those numbers on paper to hard assets in the pockets of the same people who have always held the real wealth.
...provided that you're still alive.
quote:Originally posted by Dagonee: If you do that for 10 years less
...then that's 10 year's of play money that you would have enjoyed during your flash-in-the-pan existence.
Posted by Dagonee (Member # 5818) on :
quote:...provided that you're still alive.
And if you are, then either the people who didn't waste their money playing for 10 years have to pay for you, you don't get to retire, or you live a miserable existence.
Posted by skillery (Member # 6209) on :
quote:Originally posted by Dagonee: I just like to keep my pocket in a nice little fund earning 8% or more.
[boast]bought shiny stuff at $264 an ounce back when the Bank of England liquidated their holdings[/boast]
...and really did put it in my pocket.
Posted by Primal Curve (Member # 3587) on :
quote:Originally posted by skillery: Saving for old age benefits mainly the health care industry in supporting elevated medical costs, and financial institutions ("I'll crush you) that skim their share off the top of whatever the peons manage to scrape together, and Uncle Sam who fills his pockets from death taxes.
Wohoo! I get to be The Man.
Your entire mentality towards retirement is so deeply flawed, I can only believe it stems from pure ignorance. The worst part about it is, if you keep up this mentality, I'll be the one paying for your healthcare, food and housing when the day finally comes where no one will hire you because you're too old and senile and you don't have any money because you decided to rebel against those jerks up in Washington and not save any money.
Have fun! I'll be driving by you in my Winnebago Space Ship on my way to Mars for the weekend.
Posted by Amanecer (Member # 4068) on :
quote:Because retirement is a myth. At no time in the history of man, up until the close of WWII has there been such a thing as "retirement." And as I've already stated, most people are dead within five years of achieving that status. There is no historical proof that the concept is viable.
I don't see why you need historical evidence for retirement. But since you claim to need it, didn't old people used to go and live with their children when they stopped being able to work? That is a form of retirement. Few people are phsyically capable of working until the day they die. As for it being a myth, um, both sets of my grandparents are retired. Is that just a figment of my imagination? My dad's mother is completely independent because she saved for retirement. My mom's parents are completely dependent on social security and their children because they didn't save. I don't think it's a shocker that my dad's mother is much, much happier with her situation.
This is the worst conspiracy theory I have ever heard.
Posted by skillery (Member # 6209) on :
quote:Originally posted by Primal Curve: Your entire mentality towards retirement is so deeply flawed, I can only believe it stems from pure ignorance.
...and not save any money.
The connection between the saving of money and retirement is contrived. It is a construct that gives financial institutions a mechanism for locking up your assets for a predetermined period.
It would be equally valid to draw a connection between retirement and the cultivation of close friends and family, or between retirement and the acquisition of material goods. But these connections do not benefit the financial institution.
Posted by fugu13 (Member # 2859) on :
Let me know when having material goods helps you acquire food and medical care at anything near a reasonable rate of return .
As for family and friends, this only works if the population is growing. In a fairly stable or shrinking population there are insufficient people to support the aging, particularly as the aging live longer and more expensive lives.
Posted by pH (Member # 1350) on :
quote:Originally posted by Primal Curve: Wohoo! I get to be The Man.
You're ALWAYS the man.
-pH
Posted by skillery (Member # 6209) on :
quote:Originally posted by fugu13: Let me know when having material goods helps you acquire food and medical care at anything near a reasonable rate of return
Well, you might have to convert it back to money first but...how about real estate? Even if you don't convert real estate to money, you can cultivate your food and grow your own medicinal marijuana. Better make that California real estate. Hey, we could be neighbors!
Posted by Kwea (Member # 2199) on :
quote:Originally posted by skillery: Your disposable income won't start to skyrocket until your late 40's. Until then you've got kids to raise, homes to furnish, and mortgages to pay. You need all that money now when you're young. Why put it out of your reach in a 401k?
You'll have plenty of money to save when the kids are gone, and the house is paid off.
Aside from medical expenses, how much money does it take to keep an old fart in a rocking chair alive?
Oh, and reliable transportation is also a good investment.
Saving money later in life doesn't provide you enough years of compound interest, or company matching dollars, which is completely free money.
Compound interest is one of the most powerful forces in personal finance, but you would be amazed at how many people don't really understand the concept and how powerful it can be.
Posted by Primal Curve (Member # 3587) on :
Other issues with your posts (there are many).
Death Taxes No such thing on a 401(k). This just, once again, displays your complete ignorance on the subject.
Distributions to a beneficiary on a 401(k) plan are taxable as income. The money is exempt from the normal, early distribution penalty of 10% (which exists to DETER people from taking early distributions). The beneficiary has the option of spreading the distribution out over a 5 year period or in what is referred to as Substantially Equal Periodic Payments which means that, if they take the money out over their remaining life expectancy, they don't have to take it out as one lump sum
Also, as of 2007 and thanks to the Pension Protection Act, non-spousal beneficiaries now have the option of rolling over the funds into another qualified retirement plan (IRA, 401k, 403b, 457b) without being taxed.
So, suffice it to say, Uncle Sam is hardly lining his pockets with this money. So you can just go ahead a shut up about that.
Financial Institutions "Skimming off the Top." You make it sound like every financial institution should be a non-profit or something. They're not- they're a business and it's a very very competitive market. Fees are incredibly low compared to 20 years ago. 401ks are very easy to manage with computer systems as sophisticated as they are now.
Still, the plans aren't free and the companies are still expected to make money by owners and shareholders. To fault them for charging fees is ridiculous- especially when those fees are almost ALWAYS less than 1%. So seriously, stop the conspiracy theory nonsense. This isn't Drudge.
Posted by Kwea (Member # 2199) on :
Here is an example:
If you have $2000 to save, and you add $2000 a year......
You are age 40, and will retire at age 60. You have 20 years to save, right?
You investment, at a yearly compounded rate of a modest 6%, will be worth $84,399.72. That will last less than 3 years, living at $30,000 a year. And that doesn't account for inflation.
The same amount, but at age 30 (starting saving 10 years earlier), would be worth $179,090.34. With 40 years, if you start at age 20, it would be worth $348,666.80.
That is without changing anything other than the amount of time saved. You get interest on the interest for those extra years, resulting in much more money.
If you have a company matching program, those values are even greater. Instead of $2000 a year, you get $4000 (if it is for dollar to dollar matches).
That gives you $162,385.18 after 20 years; $346,693.69 after 30 years; and $676,762.17 after 40 years of saving.
In the 40 years situation, the company match give a benefit of $328 095.37....without costing you a single cent more from your paycheck. The company pays the extra, and you keep the interest.
Posted by Primal Curve (Member # 3587) on :
Let's talk about Roth 401k Plans now as well. Yes, Roth 401ks exist (as do Roth 403bs).
We're talking about an instrument that has GAINS (that would be interest, capital gains and dividends) exempt from taxes.
It's like the greatest thing ever. Sure, you have to pay taxes now, but that's the best part! If you're in a lower income tax bracket right now (say a graduate student or something) and you're aiming for the big bucks later (lawyer or something), you can pump all that money into the Roth 401k at your lower tax bracket now and then, upon distribution, not pay a dime in taxes.
It's awesome.
Posted by Primal Curve (Member # 3587) on :
If you haven't noticed, I'm a retirement nerd.
Posted by Kwea (Member # 2199) on :
I worked for about a year in a mortgage company. I have helped about 20 people repair their credit to the point that they could qualify for a loan.
I am positive about this. If you don't carry a balance, it isn't credit, and does not effectively raise your credit score. The only way it helps is if you keep a credit card open for a long time. About 20% of your credit score has some grounding in Length of Credit.....in other words, how long you have had a card. Some people close all their accounts in order to improve their credit score and lower it accidentally because they close a 16% card they have had for 20 years, not realizing that all their low interest cards are only 3 months old.
If you don't use it, or don't carry a balance, it doesn't RAISE you credit score at all. Open lines of credit can hurt you, but it is rare. I never had a loan denied because of too MUCH credit history, but lots of my clients needed MORE credit because their limits were too low. They were getting negative credit hits just for having a $500 balance, because it used 50% of their available credit.
skillery, tell my dad retirement is a myth. He his golfing in AZ right now, after coming back from his most recent vacation in Europe.
BTW, his dad died when he was about 15, and his mom never worked. He was so poor his teachers bought him shoes in grade school. He earned every penny he has, and the only reason he could retire at 60 is because he did the complete opposite of what you recommend.
Posted by Rotar Mode (Member # 9898) on :
Wait! Does this mean I'm gonna die in the next four years? *panicks*
Posted by Rotar Mode (Member # 9898) on :
*Doesn't want to die*
Posted by Rotar Mode (Member # 9898) on :
*Enjoys speaking in asterisks*
Posted by Rotar Mode (Member # 9898) on :
*Very much.*
Posted by twinky (Member # 693) on :
quote:And as I've already stated, most people are dead within five years of achieving that status.
You've stated it, yes. That doesn't mean it's true. Can you support it with any recent statistics?
Posted by Amanecer (Member # 4068) on :
quote: I am positive about this. If you don't carry a balance, it isn't credit, and does not effectively raise your credit score.
Well, if 20% of the credit score comes from length of time held and I believe around 30% comes from percentage of credit used, then half of your score will still be positively affected by not carrying a balance even if you are correct. But looking at my credit report, which is all anybody else sees, I don't see how they could differentiate between whether I'm carrying a balance or paying it off. Also, in March I had a 700+ credit score and at that time one credit card was the only thing on my account. How did the score get so high if paying it off every month doesn't raise your score?
Sorry to be a nuisance about this, but I'd really like to understand this process. What makes you so certain that it works the way you said?
Posted by Primal Curve (Member # 3587) on :
I'm not as sure as either of you gentlemen, but most of the articles and interviews I've read and listened to recommend having a small balance on at least one credit card to improve your credit score.
Posted by skillery (Member # 6209) on :
quote:Originally posted by twinky:
quote:And as I've already stated, most people are dead within five years of achieving that status.
You've stated it, yes. That doesn't mean it's true. Can you support it with any recent statistics?
Depends on whom you want to listen to. Financial institutions will tell you that it's not unusual to live 30 years after retirement. The Boeing study has you dead within a year and a half.
And this article has you going back to work after two years.
Posted by twinky (Member # 693) on :
According to that article, those "working retired" are exactly the people who didn't plan for it. Insufficient savings, mortgages that aren't yet paid off, et cetera. They're a perfect example of why you should plan for it.
Added: The obvious thing to do is look at life expectancy, which shows that the 1.5/5-year death and the 30-year death are both outliers given the average retirement age.
Posted by Dagonee (Member # 5818) on :
quote:And this article has you going back to work after two years
Well, no, this article has 7 million retirees going back to work after two years. That's a very different statement.
Beyond that, this article provides some compelling reasons why saving for retirement isn't stupid:
quote:A closer look at the working retired population reveals a dichotomy: two-thirds of working retired survey respondents returned to the workforce because they "wanted to," but the remaining one-third went back out of economic necessity. They "had to." Average household investable assets for these "wanted to" workers are almost $550,000, compared to average investable assets of $140,000 for the "had to" worker.
A large group of these "wanted to" workers went back to work expecting non-financial rewards. Close to half thought working might make them healthier and more energetic, and they also saw it as a way to keep themselves in top mental form. These were motivations of less than one-third of those working from necessity.
...
"Our study reveals an important message for today's workers," Mr. Tyrie said. "A significant subset of working retirees today are forced to return to the workforce because of inadequate saving and investing. Working in their seventies to pay bills is not the portrait of retirement most Americans envision."
Posted by skillery (Member # 6209) on :
The Boeing study, with people dying within 18 months, was backed by a group that wanted to prove that the pension fund was over-funded, so that they could dip into it for other corporate purposes.
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