Help me understand our retirement savings

[uwbadgers19]

Hi!

Looking for some thoughts on where my wife and I are at in our retirement. I will say, I really don't understand much of what accounts do what and types of funds, etc. So, a total noob when it comes to that! My wife works for a bank, as a mortgage officer, but that actually logistics of all this retirement stuff isn't that well understood by either of us. We do have a financial advisor at the bank, and I will probably go meet with him soon, but thoughts I'd lay out our current scenario and hopefully get some advice and help us understand it all! Thanks!

Age 28 and 29

Combined Income---110k/year

Debts---Condo (140k) Renting currently at +$160/month Appraised recently at 175k
---House (240k) Valued at 315k
---Car (10k) Will be paid off in ~24 months

Retirement---A total of 78k over all accounts. Here's the thing though, we have like 9 accounts!

We each auto withdrawal each month to max our Roth's, so $5500 apiece this year = 11k

Wife has a 401k at work and puts 8% in each month, company matches 5% so 13%/month at her income of ~65k/year = 8450/year

That means each year we put ~20k away for retirement. I have no retirement benefits through my job.

Not sure if this helps, but I'll list our amounts of each account and it's symbol. Again, really no idea differences between them.

Roth---FAAGX---27k
Wife's 401k---23k (I'm not sure what it is in)
Roth---FTTAX---7k
FSFIX---5k
FSGNX---5k
FGIAX---3k
FGTIX---3k
FRSLX---2k
FAGSX---1k
AGTHX---1k
NEWFX---1k

Now, I will say, my wife is responsible for most of these accounts, I just bring in FTTAX and FGTIX for about 10k total. She has had accounts since she was young.

From logging into both of our accounts, it looks like she (well, the advisor actually) put most into FAAGX. A few of the other accounts get some deposits, but not often. Some haven't had any deposits in a few years, but it looks like they get dividends (is that right?) at the end of each year.

Sorry if I'm using any incorrect lingo. Is it ok that we have so many different accounts? Is that a good thing?

Are we at a good spot so far for our age? Thanks for the thoughts/tips!

[uwbadgers19]

Hmmm, maybe I confused myself. Would it make sense that all of those little funds are actually just all part of the Roth IRA for my wife? Maybe I made it more complex than I needed.

So, would it be the Roth is the sum of all of those, but the $ is just in different funds?

[Petunia 100]

Well, the good news is that you are saving at a nice, healthy clip. The bad news is you have a collection of load funds.

Load funds are sold to you; they have a commission to compensate the person who sells them. These commissions directly reduce your account balance. Additionally, load funds tend to have high on-going costs, disclosed as part of the expense ratio. These fees reduce your returns, which then reduce your account balance.

On the other hand, no-load funds are not sold to you. You buy them directly from the fund company or brokerage house. There is no commission to reduce your account balance. Some no-load funds also have high on-going costs, but some have very low on-going costs. This means there is less of a "drag" on the growth of your account balance.

According to MorningStar (the company which assigns star ratings to mutual funds), the best predictor of future results is the cost. High costs do not equal high returns; in fact, the opposite is true.

http://http://www.cbsnews.com/8301-5...d-performance/

Why does it matter? Well, for a young couple in their late 20s who are making healthy contributions to their retirement accounts, the difference over time can easily be six figures. That is an awful lot of money to just give away.

[Petunia 100]

Hmmm, maybe I confused myself. Would it make sense that all of those little funds are actually just all part of the Roth IRA for my wife? Maybe I made it more complex than I needed.

So, would it be the Roth is the sum of all of those, but the $ is just in different funds?

Yes, I already assumed they are not different accounts, just different mutual funds within a few accounts (2 Roths and 1 401k).

[uwbadgers19]

Credit Scores are good, we both are at 800.

Thanks for the tips. I will have to get together with our advisor and take a deeper look, this stuff is confusing!

[Petunia 100]

Credit Scores are good, we both are at 800.

Thanks for the tips. I will have to get together with our advisor and take a deeper look, this stuff is confusing!

Anyone can call themselves an "advisor". I can. You can. What sort of credentials does your advisor have? If you are going to work with someone and pay for their services, you really want to know about their qualifications.

http://http://moneyover55.about.com/...dvisorcred.htm

Additionally, a fee-only advisor is preferred to a commissioned advisor.

What is the Difference Between a Fee-Only Financial Advisor and a Fee Based Financial Advisor?

[kv968]

As Petunia pointed out, you're doing good with saving but you've got to get some cheaper funds (i.e. find a different advisor).

For example, the FAAGX you hold has a 5.75% front-end load and an expense ratio of 1.34%. WAY too high.

You say you have $27k in that fund. I know some of that is growth but just say you invested that amount right now into that fund. Right off the top you'd only really be investing $25,447.50 due to the 5.75% load. On top of that you'd be paying $361.80 per year on that $27k with the expense ratio.

In comparison (not exact but close), Vanguard's LifeStrategy Growth Fund (VASGX) has no load and an expense ratio of 0.17% or $45.90 per year on the $27k. And the returns are very similar.

Another thing you want to be aware of (or your advisor should be) is what your wife holds in her 401k so you know the overall allocation of the entire portfolio.

In short, lose the bank advisor and get a fee-only one if you feel you need it.

[uwbadgers19]

Wow, thanks! See, this is the stuff I have no clue about! It's funny, my wife has saved most of those funds, but I'm the one trying to figure it all out, see says it's too far away to worry about The way you break it down with money going out now, it can lead to BIG losses later. I'm definitely learning more, long ways to go.

I'll get together with our guy and go over some new options. As far as our advisor goes, he works with my wife. We don't pay him directly to monitor our funds day after day or anything. I will meet with him soon!

Now building upon our funds, I'll figure out where the 401k is. We could find out, but my wife can only login to it from her work CPU I think.

Any recommendations on funds we may want to look at? I know that is like needle in a haystack and lots of variable to take into account, but just curious.

Thanks!

[uwbadgers19]

Also, my wife says she gets discounts since she works at the banks. No idea how much, but I'll find out!

[Petunia 100]

Wow, thanks! See, this is the stuff I have no clue about! It's funny, my wife has saved most of those funds, but I'm the one trying to figure it all out, see says it's too far away to worry about The way you break it down with money going out now, it can lead to BIG losses later. I'm definitely learning more, long ways to go.

I'll get together with our guy and go over some new options. As far as our advisor goes, he works with my wife. We don't pay him directly to monitor our funds day after day or anything. I will meet with him soon!

Now building upon our funds, I'll figure out where the 401k is. We could find out, but my wife can only login to it from her work CPU I think.

Any recommendations on funds we may want to look at? I know that is like needle in a haystack and lots of variable to take into account, but just curious.

Thanks!

Well, the "new options" the advisor can sell you will be the same thing, expensive funds sold with a commission. That is all your advisor can sell you. If you want to stop paying those high fees, you have to lose the advisor. That's how it works.

Recommendations for funds? Well, first you decide on a reasonable asset allocation plan. Then you choose funds to fit that plan. For example, you might decide you want to be 50% in US stocks, 30% in foreign stocks, and 20% in bonds. Based on your plan, you might choose to put 35% into a US blue chip fund, 15% into a US small cap fund, 30% into a diversifed foreign fund, and 20% into an intermediate term bond fund. Or, you might choose a single fund which has a portfolio close to your desired plan.

When choosing specific funds, always choose index over actively managed if possible. Failing that, look for funds with low turnover and low expense ratios.

[disneysteve]

I really don't understand much of what accounts do what and types of funds, etc. So, a total noob when it comes to that!

all this retirement stuff isn't that well understood by either of us.

We do have a financial advisor at the bank

Nobody has yet said the most important thing. The first rule of investing is to never invest in anything that you don't understand. You and your wife have clearly not followed that rule. The fact that you are working with an "adviser" only compounds the problem.

Understand that the person you are calling an adviser is actually a SALESPERSON. If they were truly an adviser, they would be advising you. They'd be educating you to make sure you understood their recommendations. They wouldn't be investing your money without your informed approval.

Dump the adviser. Take some time to get yourself basic investing knowledge, which is not at all difficult. There are plenty of books and websites that can teach you what you need to know to manage your own funds at far lower cost than your current situation.

If you really feel the need to have professional help, seek out a fee-only certified financial planner. Interview a few to find one with whom you are both comfortable. You want someone who will teach you, not just sell you stuff. If he or she isn't ready, willing, and able to make you understand everything being said and suggested, that isn't the person you want handling your money.

[Jon Spiels]

Gained Idea

I honestly don't have an idea about this subject but glad to shoot here to say I've learned something about this from your reply. I guess I'm too young to think about retirement savings. lol

[disneysteve]

I guess I'm too young to think about retirement savings. lol

If you have earned income, you are old enough to be thinking about retirement savings. I mentioned in another thread that we will be opening a Roth for my 17 year old daughter this year.

[~bs]

Since he already paid the front end load, he may as well keep it if the fund is performing at or better than market. It's true that there are ultra low cost index funds, but managed funds can have their place in a portfolio. High fees can discourage investors from investing in a fund, meaning the total fund size is smaller and more nimble for moving in and out of positions.

[Like2Plan]

Since he already paid the front end load, he may as well keep it if the fund is performing at or better than market. It's true that there are ultra low cost index funds, but managed funds can have their place in a portfolio. High fees can discourage investors from investing in a fund, meaning the total fund size is smaller and more nimble for moving in and out of positions.

kv968 did an analysis (I copied and pasted below). I highlighted the key points.

For example, the FAAGX you hold has a 5.75% front-end load and an expense ratio of 1.34%. WAY too high.

You say you have $27k in that fund. I know some of that is growth but just say you invested that amount right now into that fund. Right off the top you'd only really be investing $25,447.50 due to the 5.75% load. On top of that you'd be paying $361.80 per year on that $27k with the expense ratio.

In comparison (not exact but close), Vanguard's LifeStrategy Growth Fund (VASGX) has no load and an expense ratio of 0.17% or $45.90 per year on the $27k. And the returns are very similar.