Quote:
Originally Posted by Onwards
Approximately how much will I need to put into the Roth IRA over the next few years to be able to pull out 10k in five years (assuming I put it in VBINX or VWELX)? I.e. what kind of ROI can I look for? (I've never invested a dime in my life, other than a CD).
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You should definitely max out the Roth this year, since you do not have another vehicle for retirement savings, and because you are expecting to pull $10K out in 5 years.
Next year, since HSA and EF will be funded, you should max out Roth ($5K) and invest at least an additional $3250 in either
a) employer's retirement plan (if available) or
b) spousal Roth IRA (if married) or
c) a taxable brokerage account.
This will amount to $8250 a year total, which amounts to 15% of gross pay ($6750) plus $2500 for house down payment. Do this for 4 years and you will have saved 15% of income plus an extra 10K for the DP. If you put $5K in Roth for 5 years you will have made $25K in contributions. I would advise you to keep $10K of this in a fairly conservative fund or funds since you plan to withdraw in 5 years. Once you get over $10K you can consider investing more aggressively, as long as you are comfortable with risk. You need to think about how comfortable you are with large swings in the value of your investments. Stocks do not go in a straight line and some years your investments will go down. I would look into some of the online risk tolerance tests.
The funds I recommended have returned 8-10% a year in the past, but you cannot plan on this for the future. All you can do is manage your risk. So my advice is to not try to get too exact with the $10K target, but rather try to save up $10K in extra contributions on top of your 15%. Any return you get on that extra 10K will be extra money for retirement, which will be a good thing.
By the way, congrats on the new job!