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08-31-2010, 08:48 PM
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This is why budgeting is so important- when bills go away, you have an idea of how much to add back into savings. You are thinking about the problems correctly. What is important to note is the bank might pay you 1% interest, and most of us here shoot for 8-12% returns from investing (with more risk), so you need to follow thru on issues like that.
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08-31-2010, 09:00 PM
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Keep investing the extra found money. With those car loans out of the way, you will start accumulating money like crazy. Max out the Roths, have your emergency savings in place, then either A) make larger payments to your mortgage and get that out of the way as soon as possible or B) utilize a taxable brokerage account from say Fidelity and invest in ETFs or mutual funds. Honestly, if you have over $20,000 in short term cash savings for emergencies, you can afford to take some more risks with your newly found money and make it grow.
Now, when I say "risks" I do not mean go crazy and day trade or buy viaticals. I mean invest simply and continue pumping money in their. You will be pleasantly surprised at how fast money will build up. You're in a great position and some focussed investing will give you a great retirement.
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08-31-2010, 09:30 PM
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jIM-Ohio
You have really laid out a complete plan, thoughtfully presented your advice in a really easy to understand way. I really like it. Disney Steve, I respect your advice as well and can clearly see where you would do things slightly differently, I really like that too. Thank you both so far for all of this. Upon looking at what the best CD's are doing right now, progress is PAINFULLY slow going with 6 month cd's @ $4k/cd using the ladder method. Each cd would yield roughly $25.00, so with 12 of them per year, I gross $300/yr, then get taxed on that. Seems like a lot of waiting for $300/yr, and without knowing how to do all of the complicated math required to figure out what I would net after 20 years of staying with that plan (assuming the current (best) cd rate of 1.18%), it seems like I would make about $6k ???? I am sure there is something I am not seeing here. My wife and I both agree with the general consensus here that paying off the cars now make a lot of sense, particularly if we pay our savings monthly as I mentioned above. It seems that the cost of the car notes would allow us to max out my roth contributions each year and pay for half of hers (should that be the plan of attack after more careful consideration). I do really need to create a retirement "portrait", that is some absolutely sound advice that I shall certainly heed immediately. Get an image of what I want retirement to look like and then do whatever it takes to allow us that kind of lifestyle when the time comes. Without that image ingrained upon my mind, I am driving blind. So, there is a lot to digest here, but is sounds like the immediate plan of attack is: (1) tell my tax guy what I am up to. (2) pay the cars off, (3) commit to a $4k (6mo) cd by Sept. 8th (and one every month thereafter for 5 add'l mos.) (4) put $10k into PRFDX (from the chart it looks like last year was the time to jump into this one, it has doubled in a year). (5) Learn as much as I can about investing, and do not be afraid to ask questions here. (6) pray that I make it to 68 and still have 20 + years of good living left. Last edited by Boogaloo : 08-31-2010 at 09:36 PM.
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09-01-2010, 05:37 AM
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Steve * Despite the high cost of living, it remains very popular. * Why should I pay for my daughter's education when she already knows everything? * There are no shortcuts to anywhere worth going.
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09-01-2010, 06:59 AM
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I dreamed about this last night - what are the possibilities of you working during your hiatus w/a goal of putting the money back towards the retirement accounts? Is there a passion you haven't followed? Even a part-time job in a field that you might like to pursue during retirement? Is there a racing pit crew you might join for a short time while you're off to keep your foot in that game, yet earn you a bit o' the retirement green? IOW, make your hobby pay you and then save & invest it.
Last edited by LuxLiving : 09-01-2010 at 07:30 AM.
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09-01-2010, 08:46 AM
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The CD ladder is about liquidity (do you know what that means?). Liquidity means its cash. For example your house is not liquid, but it is an asset worth maybe 300-400k. But to access the 300-400k you need to sell it, and that takes time, and time is the opposite of liquid. A CD is liquid in that you can open CD "anytime" (bank needs to be open) and then walk into bank "anytime" (it needs to be open) and get access to 100% of your money (minus small penalties). The interest rate is better than a savings account, but at same time the CDs are not in your account (meaning your atm card will not withdraw money from the CD). I consider this a good thing, but weight those risks to your situation and decide for yourself. 10k in PRFDX... I have not looked at a chart in YEARS (I have owned this fund since around 2004). It is a good fund- there will be others which do better, there will be many many many others which do worse. It does not take as much risk as many (most?) other equity funds, but it still has risk associated with it. 2008 was one of worst years EVER, so anything comparing 2009 to 2008 is a faulty comparison because I lost 40%+ in 2008 and made **most** of it back in 2009. Investing in stocks is like that, and part of what you need to learn is how much bad you can stomach to get something good. Even at 68, you want 20+ years of good living left. Check into how your pension benefit is calculated. I think you can retire well before 68, but much of that depends on you knowing your numbers. 1) how much you spend (now) 2) how much you want to spend (in retirement) 3) how much you can save (now) 4) how much the pension is worth
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09-01-2010, 08:53 AM
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Morningstar has a good Mutual Fund series: Amazon.com: Find the Right Mutual Fund: Morningstar Mutual Fund Investing Workbook, Level 1 (9780471711858): Christine Benz: Books Amazon.com: Morningstar Guide to Mutual Funds: Five-Star Strategies for Success (9780470137536): Christine Benz: Books And then my fav investing book of all time: Amazon.com: The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) (9780060555665): Benjamin Graham, Jason Zweig, Warren E. Buffett: Books 6) I'd like to reiterate that you need to speak to HR for clarification. The vast majority of retirement plans require (by federal ERISA guidelines) that you have some benefit after no more than 7 years with the company. But some plans are on a "years of service" schedule to determine how much benefit you'd receive, for example - maybe 4% of annual salary per year of service. Then if you retire after 20 years, your pension benefit would be 80% of your final salary. (I'm just making up those numbers for example purposes as I don't know what percentage your pension is actually using) So where they may have told you correctly that such a pension wouldn't give you 100% of your pension until some point still 20 years in the future, if you retire at 65, there may still be some benefit paid out to you.
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-JPG `It is more blessed to give than to receive.' Acts 20:35b
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09-01-2010, 01:19 PM
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I'm late to this party but offer kudos to you for realizing the need to plan for retirement. I suggest a family meeting to let your teens know you are about to make some spending changes. Having them manage allowances might be a 1st step in their financial education. As Steve mentioned, you must put your retirement plan ahead of 'something to give your daughters.'
As has been stated, we all have different backgrounds and priorities, remember you are free to apply the ideas that suit your needs. After paying off your car loans, I hope you will clarify your existing pension benefits. The sum you contribute to that plan can be subtracted from the amount [percentage] you contribute to your new retirement savings plan. Most people view their home as a 'capital growth' property rather than an investment, since they will always need some place to live. What do you see yourself doing age 65-70? How do you visualize your retirement? Think about it as you put your new financial plan into place. I suggest you run the figures, 20 % of net income + the sum deducted for pension contribution [savings], 50% of net income[basic needs] & 30 % of net income [wants/expenditures you choose]. The second part is to calculate how much you are spending in the 'needs' and 'wants' categories. Be prepared for howls of protest when you make changes. I hope you realize that many of us have had this learning curve figuring out how to manage money, plan for life events and feel the pain of the current economic turmoil no matter where we live.
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09-01-2010, 01:30 PM
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Ok did a lot of homework today trying to get a head start on this stuff.
I have to keep it short because I need to head out the door for work in about half an hour so here we go. Car loan payoff(s): (1) My car = 12,996.76 Total if I just keep paying monthly = 14,771.38 (5.74%) (2) Wifes car = 7,387.72 Forgot to get the total, but that loan is 6.75% My pension looks better than I thought it did. I am completely vested now. If I stopped working right now, I would get $548.42/mo @ age 62 or a lump sum of $40,152.00 I have 10 qualifying years in the bag and 14,438.4 hours total in the bag. I need 15 years and 20k hours to qualify for lifetime health benefits which will kick in @ age 62 if I hit that mark. As long as I keep working and putting in the hours, my pension will grow. At my current bank which is a credit union, the current rate for a 6 mos cd is .35%, plus I get an additional .25% for being a "platinum" member so .6% is the going rate at my credit union. As far as the CD ladder is concerned, do I rate chase here? or is that pretty much the going rate for a 6mo cd? And, is it better to keep my the ladder at MY bank since it is really not about the rate, but more about the EF and earning 5 times what the current rate is for a basic savings account? Also, after reviewing all of the money in both my wife's accounts and my accounts, we have slightly more than $90k in cash sitting across 3 accounts. That is as of today. My mortgage is due on the 8th, and we will get 2 paychecks (one tomorrow, and one next Thursday) so that will keep us at $90k through this month. I am moving forward. All I have to do is pick up the phone to pay off the cars. I am really nervous about this because it for some reason I have a mental block and my stomach hurts over spending $20k right now, even though I know I am saving over $3k by paying these cars off now. Help! Snafu, I wanted to edit this post to say thank you for jumping in, your input is greatly appreciated! As luck would have it, I married the only woman that (a) could tolerate me for more than a week at a time and (b) was one of the most frugal people I have ever met. The frugal part has been the biggest blessing any man could have hoped for. She knows how to find deals on things I watch my friends wives spend ungodly amounts of money on (woman's and girls clothing). Not only that, but she finds the killer things that everyone wants, yest she spends less than half of what it should cost. That is just one example, however the best part of it all, is that my daughters learned how to do it too, and they actually make a hobby out of it, so as far as the family is concerned, the "tightening" of the belt strap is going to be more of a challenge for me than it is for them by a long....long shot. Some fantastic information here and I would also like to add that I have bounced these concepts off of a few friends at work who are far better off (financially) than I am, and so far, they concur with just about everything that has been said in this thread. Anyway, heading out the door right now, calling the bank to kill the car loans right now and moving forward.... God I hate parting with that money.... Something about it scares me, even though the math works out in my favor over the term so it should be a no brainer. Last edited by Boogaloo : 09-01-2010 at 02:03 PM.
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09-01-2010, 02:00 PM
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If you open a mutual fund account, I would hope you are just as nervous... the most important thing is to not let your "short term" anxiety or feelings trump the logic of the long term plan or big picture.
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09-01-2010, 02:13 PM
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The "employers" (big studios) contribute to this exclusively as part of our collective bargaining agreement, and it is based solely on the number of hours we work. Quote:
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I am still unsure of what to do here, roth or 401k. I really need to spend some time and re-read every post in this thread to really understand your (and everyone else) advice. I am moving forward, that puts me %100 ahead of where I was 3 days ago. That's progress in anyone's book right? Thank you so much you guys, I am most genuinely grateful.
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09-01-2010, 02:26 PM
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Steve * Despite the high cost of living, it remains very popular. * Why should I pay for my daughter's education when she already knows everything? * There are no shortcuts to anywhere worth going.
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09-01-2010, 02:43 PM
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As for the mutual fund
If you agree that learning about investing is different than learning about retirement planning, then you can invest in a mutual fund in a regular (taxable) account. The fund I suggested is one I own and on the conservative end of investing in stocks. If you know a little about investing, then the whole 401k-Roth-deductible IRA decision becomes more about taxes. Because if you put 10k into a mutual fund now (taxable) and you are slowly building a CD ladder over next 6 months you will have about 10k-30k cash in April of 2011. This means when you file taxes in March or April, you can contribute 10k for 2010 IRA and (if you want) 10k for a 2011 IRA at that time. If it will take you 2-4 months to figure the retirement account info out (my guess), it will take you less time to learn about investing by watching an investment you have, and having a little skin in the game. I do not often suggest someone "start" investing like this, but your situation is much different. 1) you have high cash flow to save (you are saving almost 2k per month now) 2) you have high cash on hand (started with 90k and even after paying down 30k in debt and investing 10k to play with, you still have about 50k in cash available) 3) all the reading out there can confuse you and give paralysis by analysis... investing is not complicated, just takes a stomach and thirst for knowledge. If you prefer to be more diligent and efficient in your decisions, you want to read up on the following topics before investing 1) asset allocation 2) risk tolerance 3) stocks 4) dividends 5) index (S&P 500 and wilshire 5000 would be starting places) 6) managed funds 7) bonds 8) dollar cost averaging 9) taxes 10) tax deferral 11) IRAs 12) tax brackets 13) mutual funds and that is list for starters (read on any one of those and you ask 20 questions)...
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09-01-2010, 03:43 PM
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To help in your rate search: go to http://www.bankrate.com/
In the middle of the homepage, there is a "search for CD's and MMA" - by national and local rates. I would personally suggest looking 1st at the Money Market accounts. This money is constantly earning interest, and is available to withdraw at any time instead of being locked up in a CD for 6 months. Compare the rate you can get on a MMA as your baseline (say 1.1%). Then look at CD's. Only consider CD's with higher payouts than the 1.1%. By comparison, you said earlier that you could get 0.6% in your credit union's CDs. But if you could get 1.2% in a MMA down the street, why lock up your money to get 1/2 the return? I've seen several posters who use ING online: Savings Account rate information from ING DIRECT USA The Orange Savings Account is yielding 1.1%, which is double your preferred CD rate. And there may be higher rates in your area.
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-JPG `It is more blessed to give than to receive.' Acts 20:35b
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09-02-2010, 07:37 PM
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I use SallieMae at a 1.4% interest rate. Their savings account is better than those CDs.
In which case, you might as well keep your money unladdered until you find a CD rate better than 1.4%. Not only is all your money liquid without penalty, you will gain more interest. I know interest is not the goal here, but if you can, why not do it?
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09-03-2010, 10:35 AM
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Good on your wife and daughters for getting good deals. Will they support your move towards funding your retirement? I hope you are not feeling too miffed by our suggestions that you forgo some short term thrills of acquisition for the long term benefits of a comfortable, free of money worry, retirement.
Since your daughters are home schooled, perhaps they could gain practical research skills by finding the best interest rates and then compare/contrast benefits of credit union/savings a/c, CDs and Money Market over 4 quarters. 2nd research two index funds like Vanguard and Fidelity and compare with index EFT. It gives the girls a jump start on understanding how investments work and when they transfer what they have learned to you, the info will lock in the back of their heads. As jpg and others have mentioned, the internet allows you to put your savings in a broad range of financial institutions whether brick and mortar or electronic. Compliments for taking the first step + learning specifics of your employment pension plan.
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09-03-2010, 10:45 AM
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If you open one CD at bank A which pays X% interest
then in October open a different CD at bank B which pays X+.1% interest then in November open a third CD at bank C which pays X-.01% interest and so on 3 more times so you have 6 CDs chasing the highest available rate at the time... at 6 different banks, and you need to keep track of all that. If you have $4000 invested in a single CD, a 1% interest rate pays you $40 (per year), and a 2% interest rate pays you $80 (per year). If you make more than $40 per hour at what you do, simplicity may trump rate chasing. It is possible if you keep all 24k at the credit union there are other benefits (free atm usage, free safe deposit box...) which trumps the additional .5%-1% you will earn somewhere else. The purpose of the CDs is to keep the money out of checking/savings account and be available for emergencies. A money market account would also work. I would not focus on rate chasing for the immediate future, and focus on other aspects of the plan.
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09-03-2010, 10:59 AM
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I do rate chase with my CD but I currently only own one CD, so it isn't a big deal. If I owned 6 of them, I probably wouldn't bother.
__________________
Steve * Despite the high cost of living, it remains very popular. * Why should I pay for my daughter's education when she already knows everything? * There are no shortcuts to anywhere worth going.
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09-03-2010, 09:00 PM
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Boogaloo, I believe you can also register at online investing sites, Scottrade is one that comes to mind, where you can gain some real knowledge regarding investing in all types of instruments. Another is Morningstar which is ratings website of mutual funds, ETF's (Exchange Traded Funds), stocks etc. I know that Morningstar has all kinds of online classes and other tutorials where you can teach yourself the fundamentals of investing etc. Morningstar will also allow you to create portfolios of different funds and investments that you can track over time and see how they do based on real market activity. I would not recommend investing in individual stocks but certainly mutual and bond funds and some ETF's may be appropriate. (The stock market is tough right now!)
And you are not alone my friend. Your looking at a late bloomer here as well who is in a very similar situation to yours. I just keep plugging away at it. I would suggest also that you develop a realistic budget and give every dollar a job and track every dollar. This will give you some great insight into what your money is actually doing and you can make informed decisions. Stick around here for any length of time and the guys here will really give you an education!! :-) Regards, PMMM
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