A few retirement questions

PincessOf3 · September 2015

I am a single mother of 3 and I just bought a house. I am just starting to look into putting money away in a retirement. There are so many different types of retirement plans out there. I work for a non profit, my job does not offer a retirement. In my situation I am unable to put a lot towards retirement. I guess I am looking for guidnece.

Where do I start!?

vlagrl29 · September 2015

people here will tell you to open a ROTH which is what I would have done except I inherited quite a bit that if it were to be taxed into a ROTH it would have been more than I would have wanted to do. We are self both self employed and have traditional IRA's. Even if you don't have much still contributed because it is still something and can grow with time.

hoffse · September 2015

Start at a place like Fidelity, Vanguard, Schwab, etc. You should look at an IRA (individual retirement account) to start. There are two main kinds: traditional IRA and Roth IRA. A traditional IRA lets you make contributions and take a tax write-off in the year you contribute. When you withdraw money in retirement, your original contribution and all of the earnings are taxed. With a Roth IRA you pay the taxes now (so no write-off), but it grows tax-free forever. You don't pay any taxes on withdrawal, assuming the rules don't change in 30 years. I almost always prefer a Roth IRA because the tax savings can be big on the back end. HOWEVER the name of the game is really getting your retirement contributions up. The amount you need to contribute varies depending on your age and how much you already have saved. If you are in your 30's and just starting, you need to be in the range of 15-20% of your gross income per year in order to retire on time at age 65 or so. So while I almost always prefer Roth IRAs, the most important thing is getting contributions up. Roth IRAs are more expensive in your contribution year because you don't get a tax write-off, so you may not be able to afford to contribute as much as a traditional IRA. If a traditional IRA makes it affordable for you to contribute more, then I would go with that option. Most Americans retire with less than $100K in their retirement accounts. That's woefully inadequate and frankly pretty terrifying.

smerka · September 2015

I think you just need to start. I would call Vanguard or Fidelity and sign up for a Roth IRA. I would suggest you start wih a Target retirement date fund so you don't get overwhelmed with the different chioices of where to put money in an IRA. Target funds are balanced depending on where you plan on retiring. So if you have 30 years to go, the money will be more in stocks and less in bonds. Ten years until retirement? Just the opposite. The company will then adjust the investments for you over time. Once you get more confident in investing, you can start moving the money, but right now I think you just need to start.

smerka · September 2015

Oh and Vanguard and Fidelity might have minimums you need to open an account so if your budget is tight, I would just start saving an amount (say $100 amonth) in a savings account until you can open an account with Vanguard or Fidelity. And I would suggest having the money direct deposited to that separate account by your employer. Then you won't have to remember to do it.

hoffse · September 2015

By the way - if you need something to kick your butt into gear on getting started, read this: http://www.nirsonline.org/index.php?option=com_content&task=view&id=768&Itemid=48

Xstatic3333 · September 2015

smerka said:
Oh and Vanguard and Fidelity might have minimums you need to open an account so if your budget is tight, I would just start saving an amount (say $100 amonth) in a savings account until you can open an account with Vanguard or Fidelity. And I would suggest having the money direct deposited to that separate account by your employer. Then you won't have to remember to do it.

This is all great advice, but I wanted to add that Fidelity waives minimums if you set up auto draft. I also work for a nonprofit, and I use a Roth through Fidelity for my retirement contributions.

PincessOf3 · October 2015

Thank you! Every single one of you! I like the fact that non of you judged me for not having a retirement going. Also, I like hearing about your personal experience with different types of IRA'S. Just reading these comments I am less apprehensive. I like the idea of setting a retirement date. I really like having the money auto drafted from my check. Now, I just need to choose a company.

abrewer5 · October 2015

Can I piggy back on this and ask another question that will probably sound incredibly stupid... I have a TSP the government as my retirement savings I contribute 10% and my employer matches 5%, I make $65000/year... Can I contribute to that and also fund a Roth IRA every year?

I'm not sure how the maxes work. Currently my TSP is in a traditional account, I'm not quite ready to take the financial plunge to converting to Roth. But I wouldn't mind setting up a separate Roth IRA with Vanguard or Fidelity for extra savings.

PincessOf3 · October 2015

Also, what is a Money Market Fund?

brij2006 · October 2015

abrewer5 said:

Can I piggy back on this and ask another question that will probably sound incredibly stupid... I have a TSP the government as my retirement savings I contribute 10% and my employer matches 5%, I make $65000/year... Can I contribute to that and also fund a Roth IRA every year?

I'm not sure how the maxes work. Currently my TSP is in a traditional account, I'm not quite ready to take the financial plunge to converting to Roth. But I wouldn't mind setting up a separate Roth IRA with Vanguard or Fidelity for extra savings.

I believe that you can fund both and it is recommended to. You never know how the government is going to manage the TSP and whether or not that money is going to be there at retirement.

I know Dave Ramsey and Chris Hogan touch on this a bit in regard to retirement. They recommend investing only the minimum required to pensions or TSP, then investing individually outside that. Just because if the company goes out of business or bankrupt, then your entire investment portfolio isn't controlled and invested in your employer. Same with a TSP account, because you know, the government obviously is great at managing money. ;-)

The TSP's and pensions used to be the thing. Someone could retire very comfortably on either one. Times have definitely changed, and now it's better to safeguard your retirement by having at least something in an account you fund and manage yourself.

brij2006 · October 2015

PincessOf3 said:

Also, what is a Money Market Fund?

It's a blend between a checking and savings account. You can write checks from this account, but there is a limit as to how many in a year (depends on the bank). Yet the account also earns higher interest than just a basic savings account.

You usually have to have a minimum of $1,000 in it at all times.

smerka · October 2015

Yes you can contribute to a TSP and a Roth. If you don't have enough money to do 10% plus a Roth, the usual recommendation is to fund the TSP up to the match, fund the Roth ($5,500), and then go back to the TSP. I don't know the TSP rules very well, but I don't think you can convert to a Roth unless you are no longer working there. At least that is how it is with my husband's 403B.

abrewer5 · October 2015

smerka said:

Yes you can contribute to a TSP and a Roth. If you don't have enough money to do 10% plus a Roth, the usual recommendation is to fund the TSP up to the match, fund the Roth ($5,500), and then go back to the TSP. I don't know the TSP rules very well, but I don't think you can convert to a Roth unless you are no longer working there. At least that is how it is with my husband's 403B.

Thanks! I'll look into doing this... By converting to Roth I didn't mean moving my current account balance over I just meant making future investments to my TSP Roth. I don't believe I can move my current balance to Roth.

brij2006 said:

abrewer5 said:

Can I piggy back on this and ask another question that will probably sound incredibly stupid... I have a TSP the government as my retirement savings I contribute 10% and my employer matches 5%, I make $65000/year... Can I contribute to that and also fund a Roth IRA every year?

I'm not sure how the maxes work. Currently my TSP is in a traditional account, I'm not quite ready to take the financial plunge to converting to Roth. But I wouldn't mind setting up a separate Roth IRA with Vanguard or Fidelity for extra savings.
I believe that you can fund both and it is recommended to. You never know how the government is going to manage the TSP and whether or not that money is going to be there at retirement.

I know Dave Ramsey and Chris Hogan touch on this a bit in regard to retirement. They recommend investing only the minimum required to pensions or TSP, then investing individually outside that. Just because if the company goes out of business or bankrupt, then your entire investment portfolio isn't controlled and invested in your employer. Same with a TSP account, because you know, the government obviously is great at managing money. ;-)

The TSP's and pensions used to be the thing. Someone could retire very comfortably on either one. Times have definitely changed, and now it's better to safeguard your retirement by having at least something in an account you fund and manage yourself.

YIKES! This is kind of scary... I didn't realize having an employer based retirement account was not the best idea. Maybe I need to talk with a financial planner at some point to sort all of this out. I have a lot to learn in the way of retirement.

brij2006 · October 2015

@abrewer5 Is it a military retirement?

abrewer5 · October 2015

brij2006 said:

@abrewer5 Is it a military retirement?

No, I'm a government civilian.

brij2006 · October 2015

abrewer5 said:

brij2006 said:

@abrewer5 Is it a military retirement?

No, I'm a government civilian.

I'm trying to find a good article that touches on every aspect of it, but only found one in regard to military.
The con to a TSP is that it is limited to the types of funds the money can be invested within. Since it's a government program, then it is solely invested in government backed funds. Which can be either wonderful or a disaster.

There are more options by investing in a Roth IRA. This way you have access to all funds and can diversify yourself more.

What I'm finding, they recommend to invest in the TSP up to the match. Then after that, fully fund a Roth IRA.

jtmh2012 · October 2015

abrewer5 said:

YIKES! This is kind of scary... I didn't realize having an employer based retirement account was not the best idea. Maybe I need to talk with a financial planner at some point to sort all of this out. I have a lot to learn in the way of retirement.

The problem isn't having an employer based retirement account. The problem is having your retirement invested in the place that you work. Or more exactly having your entire portfolio based there.

We have 401k's. They're based with our employer. But we don't invest in our employer. That way if something happens to your employer (aka like Enron) your retirement savings doesn't go up in smoke.

Honestly, it really comes down to having a balanced portfolio and not having everything in one place. It doesn't matter if you invest in your employeer or any of a thousand mutual funds and stocks out there. If all your retirement is in that one fund and it tanks, you're toast.

brij2006 · October 2015

jtmh2012 said:

abrewer5 said:

YIKES! This is kind of scary... I didn't realize having an employer based retirement account was not the best idea. Maybe I need to talk with a financial planner at some point to sort all of this out. I have a lot to learn in the way of retirement.

The problem isn't having an employer based retirement account. The problem is having your retirement invested in the place that you work. Or more exactly having your entire portfolio based there.
We have 401k's. They're based with our employer. But we don't invest in our employer. That way if something happens to your employer (aka like Enron) your retirement savings doesn't go up in smoke.
Honestly, it really comes down to having a balanced portfolio and not having everything in one place. It doesn't matter if you invest in your employeer or any of a thousand mutual funds and stocks out there. If all your retirement is in that one fund and it tanks, you're toast.

Yes. This.
There is absolutely nothing wrong with a 401k through your employer. That's a good investment, because you choose the stocks and bonds that 401k uses. Your employer only provides the service, not the funds.

It's the pensions and government investment accounts like TSP's that can get hairy. Since they're invested in your employer or in government funds only.

dragonstarjk · October 2015

Lots of good advice, so I won't repeat, everything-but I am another vote for a Roth IRA.

Don't worry about not having much to put into retirement. I opened my Roth IRA 10 years ago with Vanguard and started out with a $20/month auto contribution. There have been times it's been as little as $5 and as high as $200, depending on my current financial situation, but it all adds up.

For beginners, I do really like the Target Date funds.

jtmh2012 · October 2015

I think another poster mentioned this above, but I will mention it again. My financial advisor that I love once told me that the order of preference (generally) was: anything with matching funds (referencing 401k's in our discussion), IRAs, and then back to the 401k or other investments.

kyrgyzstan · October 2015

brij2006 said:

jtmh2012 said:

abrewer5 said:

YIKES! This is kind of scary... I didn't realize having an employer based retirement account was not the best idea. Maybe I need to talk with a financial planner at some point to sort all of this out. I have a lot to learn in the way of retirement.

The problem isn't having an employer based retirement account. The problem is having your retirement invested in the place that you work. Or more exactly having your entire portfolio based there.
We have 401k's. They're based with our employer. But we don't invest in our employer. That way if something happens to your employer (aka like Enron) your retirement savings doesn't go up in smoke.
Honestly, it really comes down to having a balanced portfolio and not having everything in one place. It doesn't matter if you invest in your employeer or any of a thousand mutual funds and stocks out there. If all your retirement is in that one fund and it tanks, you're toast.

Yes. This.
There is absolutely nothing wrong with a 401k through your employer. That's a good investment, because you choose the stocks and bonds that 401k uses. Your employer only provides the service, not the funds.

It's the pensions and government investment accounts like TSP's that can get hairy. Since they're invested in your employer or in government funds only.

The C, S, and I funds of the TSP are invested IOT match the S&P, Dow Jones, and the MSCI EAFE. Investing in them is really no different than investing in similar mutual funds with a civilian company.

OP, I'm uniformed services, so I get no match, but I max out a Roth and then contribute to the C and I funds.

A few retirement questions

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