How to save for retirement?

[amberfocus]

Hello everyone!

I just recently got a job with retirement benefits. Basically, I get to put pre-tax money into a tax-sheltered 403B account. I don't get employer matching, though.

I know next to nothing about saving retirement. I just know that I should start doing it.

Here's what I've figured. I'm 21, so I have 45 working years ahead of me, until 65 (okay, I'm rounding for pretty numbers). Assuming I live till 80, I have 15 years of retirement that I need to fund.

Thus, retirement is 25% of the rest of my life.

Assuming no growth whatsoever (after adjustment for inflation), I should be putting away 25% of my income into retirement?

That's probably a horrible way to estimate how much to invest.

Which is why I need help desperately.

I get to choose between TIAA-CREF or Vanguard. Looking at the brochures for each, there are various plans in each--pre-made retirement packages or choose your own portfolio.

- I have no idea which company to choose.
- I have no idea which plan to choose, or how to make a portfolio.
- I'm not even sure how much money I should be investing.

Oh, and this job is a temporary two year stint while I figure out if I want to go to graduate school or sell out to industry. So it's entirely possible that in two years, my income will be dropping drastically for five years (or more). (And it probably won't be rising much after that since academia does not pay well. )

So, any suggestions? Advice? What did you wish you did when you were my age? Anyone in a similar situation, now or in the past? Any help would be much appreciated! Thanks in advance!

~mimi

[sweeps]

Vanguard is much better than TIAA-CREF in my opinion. I recommend the Target Retirement 2045 fund if that one is available to you.

Create a budget and find out how much you can afford to save (let's say 8%). Then tighten the screws and go even higher (let's say 12%). The more you can save, the earlier, the better.

Another option -- since your 403(b) does not have a match -- is to open a Roth IRA directly at Vanguard and max that out. There are several threads on here about Roth's vs. other retirement accounts. If you still have money to invest, then you can put it in the 403(b).

One more thing... a projected life expectancy of 80 is pretty low, in my opinion. People are living longer and longer, and there's a good chance the average life expectancy will be over 100 fifty years from now.

[Broken Arrow]

I too would take a look into Vanguard Roth IRA with Vanguard Target Retirement 2045 fund.

[pearlieq]

Originally Posted by Sweepsplayer

Create a budget and find out how much you can afford to save (let's say 8%). Then tighten the screws and go even higher (let's say 12%). The more you can save, the earlier, the better.

Another option -- since your 403(b) does not have a match -- is to open a Roth IRA directly at Vanguard and max that out. There are several threads on here about Roth's vs. other retirement accounts. If you still have money to invest, then you can put it in the 403(b).

One more thing... a projected life expectancy of 80 is pretty low, in my opinion. People are living longer and longer, and there's a good chance the average life expectancy will be over 100 fifty years from now.

Exactly what I would have said!

Regarding life expectancy: my grandparents smoke, drank, and were always at least slightly overweight. My grandfather passed away at 84 and my grandmother is still going strong at 86. To be safe, I'm planning on at least 100. I'd hate to outlive my money!

[amberfocus]

Originally Posted by Sweepsplayer

Vanguard is much better than TIAA-CREF in my opinion. I recommend the Target Retirement 2045 fund if that one is available to you.

Yup, I've got that one available. Just out of curiosity, is there a specific reason why you prefer Vanguard? Some concrete criteria like expense ratio? Or is it more debatable, such as Vanguard is better in certain situations while TIAA-CREF is better in others?

Originally Posted by Sweepsplayer

Create a budget and find out how much you can afford to save (let's say 8%). Then tighten the screws and go even higher (let's say 12%). The more you can save, the earlier, the better.

I'll be taking home around $2000 per month. I can shovel quite a lot of that into retirement--on the order of $500/mo--but there's the matter of priorities, as well. I'm also repaying student loans, saving for a car, and saving for an eventual house down payment. How would you weigh the relative importance of retirement vs. paying down student loans on a more accelerated schedule?

Originally Posted by Sweepsplayer

Another option -- since your 403(b) does not have a match -- is to open a Roth IRA directly at Vanguard and max that out. There are several threads on here about Roth's vs. other retirement accounts. If you still have money to invest, then you can put it in the 403(b).

That's, what, $4000 a year? I believe my father has also opened Roth IRAs for me through my bank (Bank of America)--would the two conflict? Is doing Roth IRAs through Vanguard better than through BoA?

Originally Posted by Sweepsplayer

One more thing... a projected life expectancy of 80 is pretty low, in my opinion. People are living longer and longer, and there's a good chance the average life expectancy will be over 100 fifty years from now.

Well, I just took the number for the following chart (birth year 1984, female, all races), and rounded up. I'm not sure how else to pick a number to base my estimates on that's not wildly subjective.

http://www.infoplease.com/ipa/A0005148.html

There's nothing like a silly chart to make one feel mortal.

~mimi

[sweeps]

Ok. Vanguard vs. TIAA-CREF. First, expenses are lower with Vanguard, dirt cheap even. Second, TIAA-CREF's funds are managed, and frankly their performance stinks. Vanguard is mostly index funds -- designed to match the market. Third, in my experience, Vanguard's customer service is much better (I use Vanguard, a close family member uses TIAA-CREF). Performing a rollover out of TIAA-CREF, for example, ranks up there with pulling teeth.

There is constant debate on here about setting priorities for saving for retirement, paying down debts (and which ones), and saving for non-retirement goals (such as buying a house, saving for college, etc.). There's no good answer. Paying down really-high interest loans (such as credit card debt) should usually be a top priority. But I also weigh saving for retirement very highly. Earning 9-10% a year (from your retirement fund) is better than what you would earn from paying off most low-interest loans. On this forum I think you'll find a slant toward paying off debts (even lower interest debt) before doing much saving or investing.

Yes, there is a maximum of $4,000 a year that can go into all of your combined Roth accounts. If you're maxed out, then contributing to your 403(b) wouldn't be a bad choice. Particularly since Vanguard funds are available to you.

Regarding life expectancy, it's definitely a SWAG (scientific wild a__ guess). I would bump your estimate to at least 90. Particularly if your family members have lived to a ripe old age.

[disneysteve]

Originally Posted by amberfocus

Assuming I live till 80, I have 15 years of retirement that I need to fund.

I'll post a better response when I have more time but just wanted to comment on this. No way should you be planning on funding just 15 years of retirement. I'd advise doing your planning and projections based on living to age 90 or more. The last thing you want to do is outlive your savings.

[Ima saver]

I too prefer Vanguard. I would open a roth ira and put $4000 in per year. I like vanguard index 500 and the others mentioned are good also. Vanguard is better than a bank roth ira and that can be rolled over into a vanguard roth ira.

[amberfocus]

Wow, no one is standing up for TIAA-CREF! Does *anyone* life/prefer them?? I'll admit I'm a little surprised, I was expecting the endorsements to be more even. I know that lots of people in the educational and academic fields (e.g. teachers and professors) go with TIAA-CREF. Is there some sort of benefit involved for them, or do they all have their collective heads in the sand? Because at this point in time, I *am* working in a university setting...

~mimi

[Ima saver]

I have tiaacref for my granddaughter. At the time, they would let me open an account for $500. They have changed that now.

[amberfocus]

Originally Posted by Ima saver

Vanguard is better than a bank roth ira and that can be rolled over into a vanguard roth ira.

Do you know the reason why?

~mimi