401k contributions

[gtoast]

just curious...what % age are you at? im at 14 + 3.5 company match which will be 100% vested this year. i only started this (well, beginning of '06) year and im 31....guess i could be making up for lost time.
'experts' say you should be contributing 15-20% for 30 yrs to have a comfortable retirement (which to me makes no sense-15-20% of 30k per yr is a whole lot different from that of 100k+ per year).
also have some real-estate investments, and am looking into roth ira's.
most companies don't offer pensions, so its mostly up to the individual which is quite scary if you consider what the 401k was implemented for initially, as well as the future volatility of international markets.
im only just getting into it...perhaps a financial planner is required.

[Phil]

There are so many viable retirement options out there, it is really up to personal preference. I guess the basics are, a little more risk when you are young and a little more conservative when you are older. When in doubt, diversify, balance your portfolio.

I am NOT an expert, but I do plan on having a decent retirement nest egg. If you are in your 20's and 30's, and DON'T plan on being a millionaire by the time you retire, you will be in trouble. If you can live off of $80,000 per year now, you'll need about $250,000 per year of income (give or take) to maintain that same lifestyle in 25 to 30 years. If your nest egg can't produce that much in interest, then you will be on a slipperly slope...and I wouldn't be counting on social security either.

Another note, it is TIME in the market, NOT timing that counts. I have it around here somewhere, but the data says that if you (by trying to time the market and bounce your money around) missed the best 12 days of the stock market over the last 20 years, your average return would have dropped from 11% to like 4%. :wflag

Again, I'm not and expert, and still have a lot of learning to do myself. I guess the main point should be if you aren't saving, you should be. To answer the question, I get 100% match up to 4% of my base salary, plus profit sharing. Roth IRA's are a beautiful thing too.

[DesmoDog]

I'm at 15% now. Company matches, um, well, I forget. 4%? 8%? Doesn't really matter, nothing I can do about it.

I've been contributing for about 20 years, at different levels throughout the years, and depending on who's numbers you use I'll either be living large or completely screwed by the time I'm retirement age.

I don't really plan on retiring anyway, I just want to get to the point I can quit the fookin auto industry, distance myself from the arrogant egomaniacs who run the US car companies, and do something I enjoy without worrying so much about what it pays.

[CAG]

As Phil said, it is time in the market, not timing. You should be able to generate an average of 7% per year in you account. At that rate, assuming no contributions on your or your employers part, the value of your account will double about every 10 years.

If you are wondering about asset allocation, it is an individual choice. Depends on how much risk you are comfortable with. A general rule of thumb is: 100 minus your age is how much should be in equities. (If you are 40, 60% in the market if you are 60, 40% in stocks.

You should contribute the maximum amount you can to your 401k. Many people make the mistake of only contributing the amount the company matches. Max it out.

IF you are above 50, I think there are provisions to over contribute to your 401k to, in effect, "catch up" for not having contributed earlier.

Finally, and this will generate some controversy, consider borrowing from your plan. Hear me out. If most of the money in your plan is in fixed income you are are earning about 5%. Most plans will allow you to borrow from them as long as you are still employed. The interest rate to borrow will be around 6% to 8%. If you contribute the maximum amount allowed by law to your plan, doing this will allow you to contribute extra money. Also, you are ineffect earning a net 2% on your money.

Don't borrow the money and use it to buy a bike. (Never borrow to buy a depreciating asset.) Invest it conservatively.

CAG

I meant 200 basis points, not 2%.

[indetrucks]

I'm 30 now and have been putting in 18% of my pay since I was 20yrs old... My salary range since 20 has been between 50-75K a yr.
I've been told that by the time I retire I should be well into the millions as far as 401k goes. But by the time I retire 1 million Dollars will be worth about what 500K is now. So go figure :(

The thing about borrowing from your 401k is you pay yourself back (this includes the interest). Only problem is that money you borrowed will not be active in the market while you have it out (until it's payed back).

[CAG]

The thing about borrowing from your 401k is you pay yourself back (this includes the interest). Only problem is that money you borrowed will not be active in the market while you have it out (until it's payed back).[/quote]That is correct. So if you are earning more on the money that is in the market than whatever the plan will charge you for interest it is not worth it to do that. The strategy works for folks that have a high percentage in fixed income.
The other way to look at it is the return in your 401k on stocks is not fixed. You may earn 10% this year and nothing (or even suffer temporary loss) next. The interest rate is fixed for the life of the loan so that is kind of a guaranteed return. I always found the attractive part to be the over contribution.

CAG

[indetrucks]

Right now the % on any loan (personal or home improvement) for my 401k plan is at 9.25%.
At first I was upset because it was so high, but then I realized that the money would be payed back to me at that high rate. So technically.. you're saying that if my portfolio averages less than 7% gain over the duration of (said) loan, then I am making more money back at the 9.25% fee of the (said) loan?

If this is correct, then would taking say, 20K out to buy a bike really be bad when concidering you will be making more off that 20K loan at 9.25% than if it was in your portfolio making 7% ? (Of course the 7% is a hypethetical number for example purposes only)

[CAG]

Mostly correct, yes. You have the math right.
First, make sure you are contributing the maximum allowable by law for your age. That way the money you put back in is an extra contribution.

I have always believed it is a bad idea, no matter where you get the money from, to borrow it to buy a depreciating asset. Even though you are earning the spread on the money you borrow, the bike you buy will probably never be worth what you paid for it. But if that is what you want to do, it is more sensable than borrowing from a bank or dealer.

As for home equity loans, I'm not an accountant but I thought, home equity loans were tax deductable only if you used the money for home improvements. I know most people don't do this, using the money for anything they want, and I don't know how the IRS would find out but I would never borrow against the value of my home to buy a bike.
I believe that the 1098 is going to be huge. So, I borrowed money to buy the stock. I paid $11.50 for it. I don't think it will depreciate, but if I can double my money in 2 years that is more than enough for me.

CAG

[Phil]

As for home equity loans, I'm not an accountant but I thought, home equity loans were tax deductable only if you used the money for home improvements. I know most people don't do this, using the money for anything they want, and I don't know how the IRS would find out but I would never borrow against the value of my home to buy a bike.


It doesnt matter what you use the money for, it's all tax deductable. When you are using the money for Home Improvements, then it becomes HMDA reportable, but the tax implications on the same.

[Phil]

Right now the % on any loan (personal or home improvement) for my 401k plan is at 9.25%.
At first I was upset because it was so high, but then I realized that the money would be payed back to me at that high rate. So technically.. you're saying that if my portfolio averages less than 7% gain over the duration of (said) loan, then I am making more money back at the 9.25% fee of the (said) loan?

If this is correct, then would taking say, 20K out to buy a bike really be bad when concidering you will be making more off that 20K loan at 9.25% than if it was in your portfolio making 7% ? (Of course the 7% is a hypethetical number for example purposes only)

I wouldn't pull any money from your 401k to spend, regardless of the interest rate. Taxes aside, less balance means less compounding interest.

Borrowing money isn't bad, all the time. I know I don't have 20k of disposal income just laying around. So you borrow 20k, and end up paying back 25k (or whatever). It's the cost of doing business, and the price you pay to have years of enjoyment on a great machine. :badgerslayer

[indetrucks]

I wouldn't pull any money from your 401k to spend, regardless of the interest rate. Taxes aside, less balance means less compounding interest.

Borrowing money isn't bad, all the time. I know I don't have 20k of disposal income just laying around. So you borrow 20k, and end up paying back 25k (or whatever). It's the cost of doing business, and the price you pay to have years of enjoyment on a great machine. :badgerslayer

I agree with both of you.. Sounds much better to borrow from yourself and pay yourself back interest than to borrow from a bank and pay them back..

[ricster]

Unless you borrow at a very very low rate. For instance I recently bought a triumph sprint st..I got a 2.90 rate from ge capital for 4 years borrowing 10k. It will cost me $480 in interest charge for 4 years...thats cheap money!:greg

[CAG]

Unless you borrow at a very very low rate. For instance I recently bought a triumph sprint st..I got a 2.90 rate from ge capital for 4 years borrowing 10k. It will cost me $480 in interest charge for 4 years...thats cheap money!:gregAbsolutely! I ignored my own advice and borrowed $10,000 from GE at 2.75% for the MV. That is lower than the inflation rate which means that after inflation, GE is paying me to use their money.

CAG

[gtoast]

its kinda funny that the amount that was not vested when i left the company back in january has not yet been removed from my account. furthermore the company is now for sale, on the verge of implosion, and there has apparently been a mass exodis over the last few weeks so i question if the person who knows it needs to be removed is even there anymore.
the funny thing is that the parent company based in new york just bought 80% of chrysler...