Working on being debt-free by retirement

[GrimJack]

Probably well before retirement but.... I spent the last 18 months unemployed (except for a couple weeks with the Census) and I finally landed a job that might work out to be a career to last until retirement (working for Dept. of Treasury).

Anyway, I have $12,000 in cc debt that I hope to pay off by the end of 2010. Since I spent so much time unemployed, ANY steady income will be plenty so I decided to have 20% taken out for the gov 401k equivalent (they match up to 5% so that actually becomes 25%!!). I have $100 a month automatically removed from my checking account ($25 per week to ING) automatically for an emergency fund. Am I forgetting anything I should be paying attention to? I also expect to get significant raises for the next 2 years as the position I hired into as a GS 5 is actually rated as a GS 8 position so every 2080 hours I will get a bump until I get to GS 8 (hope I am making this understandable).

I will probably put off retirement a few years past 65 as DW is 14 years younger than I and I did not plan well for retirement so will probably need the extra time.

[swanson719]

Total Money Makeover by Dave Ramsey. Make it your best friend for a while.

[jIM_Ohio]

Ramsey's money makeover and retirement planning? LOL

Before you take investing advice from Dave Ramsey, get a second and third opinion.

As for debt, when do you project making it go away?

Welcome to the boards... here is what you want to look at:

Check this thread and see if you need to learn more about retirement planning- if you have questions, post them here.

http://www.savingadvice.com/forums/investing-banking/50669-questionaire-people-starting-retirement-planning.html

to learn more about how to invest the 25%, read this thread, then post questions here

http://www.savingadvice.com/forums/investing-banking/50734-investment-risk-questionaire.html

Basics- can you outline right now
a) what your current budget is- gross and net income, expenses, retirement plan contributions?
b) what tax bracket you are in now?
c) is a Roth IRA a good choice with some of the 20% you are saving?

saving 25% of income will allow you to retire... biggest issue is making sure you invest it "the right way"- there is more than 1 right way, just try to avoid making bad decisions is my point.
Knowing the tax rules might make the 25% work more efficiently for you, just depends.

Check those 2 threads- they are a series of questions to ask yourself to see how much help you need. Ask questions as appropriate- direct questions to this thread, so others can see all your information in one place. THX!

welcome to boards

[GrimJack]

Total Money Makeover by Dave Ramsey. Make it your best friend for a while.

Sorry, I am so over Dave Ramsey. Years ago I use to listen to him but his rabid anti-union stance finally drove me away. He is finance-tainment; kind of like listening to Oprah, Dr. Phil, or Maury.

[minnie1928]

I like Ramsey just in the sense that he points out the blatantly obvious. I just look past the ego, religion comments, etc. The basics of his plan are fine (for the most part) and are easy to follow. However, once you get to retirement planning, investing end of things you definitely need to consider another source. That area is definitely NOT his strong suit.

[GrimJack]

Thanks, jIM - I actually have a history on this site as a Liberal so I am not 'brand new' here. I expect the debt to be gone by the end of this year. Whenever I can I add to Vanguard IRA accounts. The gov retirement program TSP is kind of interesting I chose to go with 20% in each of 5 plans that range from total income to total growth. I was a Fool back in the day ('95 to '99) and i still have the 'dogs of the DOW' portfolio with TDWaterhouse that was frozen in time back when the whole 'data mining' scandal came up.

I do not know where I stand on ROTH IRAs - I have a couple roth accounts (stocks in one and MFs in the other). There is an option for me to consolidate my IRAs into my TSP (thrift savings plan) but I am not sure I want to do that.

It is just that 1999 was the last of my full employment; since then whenever any of my contracts offered 401k, I took it then rolled them to IRAs at the end of the contract. I have a lot of IRAs with Vanguard and TIAA-CREF - I kept the fund styles different so it is worthwhile keeping them separate.

[swanson719]

I by no means suggest Dave Ramsey as an investment person. He is a get of debt person. The title is "Working on being debt free by retirement"...

I think some of the responses have missed the forest for the trees. The OP has $12K in CC debt, no EF, and is asking investment questions. Putting the horse before the cart if you invest and still have any debt aside from the mortgage. Hence the Dave Ramsey suggestion.

I personally like the nuts and bolts of Ramsey's get out debt plan. I would contribute the 5% to the 401(k) to get the match, then put the other 15% on the CC debt until it's gone. You say you "hope" to have the CC debt paid off by the end of 2010. Your budget should tell you if you will or won't have it paid off by then. Working for the gov't myself, I don't see how a GS-5 invests 20% and pays off $1000 a month in principle on CC's without using a spouses income to do it. Not saying it can't be done, but that's a lot.

The $100 a month into an EF is entirely too little. I get that a gov't job is pretty secure, but you need to have enough in there to keep from using the CC's again. At least a paychecks worth to start off with, and then when the $12K in debt is gone, build it up to 6 months worth of expenses.

I don't like 401(K)'s over Roth IRA's, but that's me. I'm no investment genius, but I do know I pay next to nothing in up front fees on my Roth and no back-end or transaction fees. That's hard to find in 401(k)'s. And if you don't like Dave Ramsey's views on life, that's fine. He turns off a lot of people, I agree. But that doesn't change that if you're looking to get out of debt before retirement, you have to pay off the debt before you can seriously invest, which is necessary for retirement.

[maat55]

I also recommend Dave Ramsey for getting out of debt. I'm debtfree today due to his program(motivation is very important).

Not liking him due to unions is narrow minded.

As far as investment advice, Dave is simplistic. Investing in mutual funds with a ten year track record is wise. IMO, he should recommend more conservative avenues closer to retirement. But overall, his advice is good for those who do not wish to become more financial savy.

I also agree with his debtfree menatlity. IMO, finances are a lifestyle decision, you can remain simple(as DR suggests) or you can add risk.

[jIM_Ohio]

Thanks, jIM - I actually have a history on this site as a Liberal so I am not 'brand new' here. I expect the debt to be gone by the end of this year. Whenever I can I add to Vanguard IRA accounts. The gov retirement program TSP is kind of interesting I chose to go with 20% in each of 5 plans that range from total income to total growth. I was a Fool back in the day ('95 to '99) and i still have the 'dogs of the DOW' portfolio with TDWaterhouse that was frozen in time back when the whole 'data mining' scandal came up.

I do not know where I stand on ROTH IRAs - I have a couple roth accounts (stocks in one and MFs in the other). There is an option for me to consolidate my IRAs into my TSP (thrift savings plan) but I am not sure I want to do that.

It is just that 1999 was the last of my full employment; since then whenever any of my contracts offered 401k, I took it then rolled them to IRAs at the end of the contract. I have a lot of IRAs with Vanguard and TIAA-CREF - I kept the fund styles different so it is worthwhile keeping them separate.

I missed the post count- 319- sorry. Maybe WELCOME BACK is more appropriate?

I would do a retirement check up and get things all working together- sounds like some accounts are cash, some are one fund, some are another fund, but "all" do not compliment one another.

The 20% you set aside is a good step, you might be subjecting yourself to more risks than you realize without a retirement investment plan. If you want help, post all accounts with assets and investments here, and let some of us give some constructive comments.

Good luck to you.

[GrimJack]

I also recommend Dave Ramsey for getting out of debt. I'm debtfree today due to his program(motivation is very important).

Not liking him due to unions is narrow minded.

As far as investment advice, Dave is simplistic. Investing in mutual funds with a ten year track record is wise. IMO, he should recommend more conservative avenues closer to retirement. But overall, his advice is good for those who do not wish to become more financial savy.

I also agree with his debtfree menatlity. IMO, finances are a lifestyle decision, you can remain simple(as DR suggests) or you can add risk.

Sorry, I did not ask for a vote on who I like or dislike nor do I think something as personal and vital as being pro-union 'narrow-minded'. I said that I stopped listening to him, I did not say that I discounted the things I learned before I stopped.

[maat55]

Sorry, I did not ask for a vote on who I like or dislike nor do I think something as personal and vital as being pro-union 'narrow-minded'. I said that I stopped listening to him, I did not say that I discounted the things I learned before I stopped.

Fair enough.

[GrimJack]

Well, here is where I start:
GS 5 that will change to GS 5 step 5 means $33,414 changes to $37,867
The upgrade is due to my having already been a Fed GS 6 but the position I joined only hires in to gs5. The position is rated gs8 so every year I spend in service (2080 hours), I get an automatic bump to next grade until I hit 8. I had almost a year in grade as a 6 and it is under consideration that those months will count so I might make gs7 by summer. If I take furlough in July, I won't get recalled until late Sept or early Nov. which could impact my plans.

Income-wise, I am unable to budget with much precision so I am going with $18.14 per hour (a little optimistic, I know), this works out to a take-home of 943.32 bi-weekly when I factor in the 20% to TSP.

I have about $813 in EF that I add $25 per week to.
Investments:
Under $100k
I am running late since I am a 'boomer' so you see why I am going with 20% to my TSP.

I expect to get about a $1000 from WA state unemployment in back checks that will go directly to my cc bill. Don't know how much my tax return will be but that also will go to the cc bill.

[Like2Plan]

I decided to have 20% taken out for the gov 401k equivalent (they match up to 5% so that actually becomes 25%!!).

The gov retirement program TSP is kind of interesting I chose to go with 20% in each of 5 plans that range from total income to total growth.

Have you looked at the L funds? These are target funds that automatically balance each day. They evolve to be more conservative (more income, less growth) the closer you are to your target date.

The L2040 (for folks who plan to withdraw their money after 2035) fund this year is about 10 % C, 10% F, 40% C, 17 % S and 23% I.

There are L2030, L2020, 2010 funds ( you can look up their mix on the TSP web site)

The L income fund (for folks currently withdrawing their money) fund is 74% G, 6% F, 12 % C, 3% S and 5% I.

I believe they will be adding a L2050 fund this year --which will be more growth and less income than L2040. The L2010 will roll into the L income fund.

[GrimJack]

Have you looked at the L funds? These are target funds that automatically balance each day. They evolve to be more conservative (more income, less growth) the closer you are to your target date.

The L2040 (for folks who plan to withdraw their money after 2035) fund this year is about 10 % C, 10% F, 40% C, 17 % S and 23% I.

There are L2030, L2020, 2010 funds ( you can look up their mix on the TSP web site)

The L income fund (for folks currently withdrawing their money) fund is 74% G, 6% F, 12 % C, 3% S and 5% I.

I believe they will be adding a L2050 fund this year --which will be more growth and less income than L2040. The L2010 will roll into the L income fund.

I looked at both 'sets' of funds and I just don't trust the L income thinking. I am only 61 and expect to live to 144, how the heck am I supposed to fit into their plans? I know, you think I am joking well. I have promised myself that I can start smoking again when I turn 103 (I started by saying I get to start again when I turn 94 but I keep getting older so I pushed it back to 103 -- to be honest DW would kill me if I start up so, who knows. Hmmm, she is only 14 years younger than me, I might end up outliving her -- then I can start).

[GrimJack]

The $100 a month into an EF is entirely too little. I get that a gov't job is pretty secure, but you need to have enough in there to keep from using the CC's again. At least a paychecks worth to start off with, and then when the $12K in debt is gone, build it up to 6 months worth of expenses.

I don't like 401(K)'s over Roth IRA's, but that's me. I'm no investment genius, but I do know I pay next to nothing in up front fees on my Roth and no back-end or transaction fees. That's hard to find in 401(k)'s. And if you don't like Dave Ramsey's views on life, that's fine. He turns off a lot of people, I agree. But that doesn't change that if you're looking to get out of debt before retirement, you have to pay off the debt before you can seriously invest, which is necessary for retirement.

Er, were you ever correct! I have finally received some full paychecks and if I remain a GS 5 I will not get out of debt this year. I somehow expected that my expenses would remain what they were when I was unemployed - did not happen. It is time for me to make a budget and track every single dime - I can't figure out where it all goes, Sigh.

Why did all the people who called Ramsey seem to make over $100,000?