Bill Woessner <woessner@[EMAIL PROTECTED]
> writes:
> On May 7, 6:57 pm, "Elizabeth Richardson" <erich...@[EMAIL PROTECTED]
>
> wrote:
> > Bill, I think you'll find the general consensus is that at your age
you
> > cannot have saved too much for retirement.
>
> Yeah, that certainly seems to be the case. It strikes me as
> unnecessarily extreme. For example, Bread suggested that if you can't
> contribute the maximum to your retirement accounts ($41K for 2008),
> you're spending too much. Given that the median household income in
> the United States is $48K, well... you do the math.
That's not actually what I said. I did, however, suggest that
whatever else you do, you make sure to continue to put at least
10% of your income into your retirement accounts. More's better,
sure, but less than 10% makes it awfully difficult to picture
one managing to save enough to ever actually retire.
(And not everyone can put the legal max into retirement accounts -
even if one can put the full $15.5k into a 401k *and* maxes out
an IRA (Roth or Trad), that's still only $20.5k (more for those
over 50, though.) The difference would have to come from employer
matches + other employer contributions - and most folks' employers
are not quite that generous)
> Plus, what's the point of contributing so much to your retirement
> accounts? Ensuring your children never have to work a day in their
> lives? Suppose you do invest $41K per year for 30 years with a 6.5%
Again, you're missing a lot here. I don't expect anyone making
less than $200k to reasonably expect to put $41k into retirement
accounts.
Now, you've said you'd saved $95k into retirement plans - with
your wife - by the time you're both about 30. If we assume that
you both started earning enough to really save money at about
25 years and put 10%/yr away, I'll guess that your combined
income is on the order of $100k now. Keep putting 10%/yr away
and assume your 6.5% return (and if we assume everything is
after inflation and that your income goes up at inflation + 2%),
then after 30 more years of working, you have a retirement
balance of about $1.72 million. Which is enough to draw an
annual retirement income of about $69k.
Saving 10% it'll *still* take you 30 years to build up that
moderate retirement dream. And at that point you'll be 60
and probably live another 30 years.
So 10%. Do it. Do no less. If you want a safety net, or
an earlier retirement, or be able to invest a little less
aggressively and with less risk - save more. Assuming a 6.5%
*real* return is very aggressive, and a ****tfolio which can
generate that much is likely to have dips of 20% or more
along the way. Can you handle that kind of volatility?
> Another thing I'm concerned about with the "all retirement all the
> time" approach is diversity of investments. What if we want to invest
> in real estate? Admittedly, it's possible with a self-directed IRA,
> but I've heard it's a real headache.
Not "all retirement all the time". 10%. After that, non-retirement
savings. After *that*, spending. If the spending's too high, there
are only two options. Earn more or spend less.
And if by "real estate" you mean directly owning rental property,
bear in mind that that's *not* an investment per se, but more the
owning and management of a business. I'm all for it, but *not*
at the expense of that 10% in the retirement accounts. If you
can put 20% of your income away, then 10% in retirement accounts
and 10% into the "start a business; buy rental housing; etc"
account. But still - 10% into the retirement accounts, unless
those accounts are already well funded - the best way to do that
is to fund them *early*. If you put more than 10% into the
retirement funds early, then sure, at some point, stop. But
at $95k at the age of 30, it's not enough.
Anyway, there are plenty of real-estate and other non-stock-assets
one can buy in an IRA quite easily, from REITs to RE management
companies to other commodity-tied companies which own land and/or
other assets.
> What if my wife's practice
> offers to buy her in as a partner? Or she wants to buy a practice or
> start a new one? Heck, what if >I< want to start a business?
All well and good. But NOT with the retirement accounts. You may
have to stop contributing to them at some point, but the retirement
accounts are your safety net.
> If the
> vast majority of our savings is tied up in retirement accounts, we'll
> have to pay a hefty premium to invest outside the box, as it were.
If you save 20% - half in retirement accounts and half outside of
them, then no, the vast majority of your savings won't be "tied up".
I'm not really sure what you're looking for here. If you think
anyone's going to tell you "oh, sure, don't worry about saving
for retirement in IRAs and 401ks" you might get that advice,
but you'd likely be taking a bigger risk with your own future.
Even if you invest identically (ie. funds rather than a business
or real estate), the tax drag lowers your long-term return and
to make up for that you have to either save more or invest in
a more risky asset mix.
You really didn't give us enough information about your situation
to make fully drawn out advice. Knowing what little I know,
though, you clearly haven't made a "mistake" in putting away
the $95k you already have, and stopping your contributions to
that (rather than, say, cutting down other spending) may be
necessary for a short time, but any more than a couple of years
would be the real mistake.
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
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