How much should one save?

[azanon]

I have been wrestling with this question for several months now, and i just cant make up my mind. I'm 32, my wife's 30, we both work earning about 92,500k/year combined (more potential earnings in the future as my wife just finished grad school), are in a mortgage, and have one child.

The defacto answer i've heard is 10% of pretax income, but now i'm starting to wonder if that is still the way to go.

The recent slamming of the market in the 21st century I think has shown us we can no longer put 12% or higher into our estimated return rates. Morso, pensions are getting smaller and smaller, or non-existant (CSCR? vs FERS). Also, there's constant concern that social security is dwindling, and people are living longer.

I dont want to have to work when i'm an old man, and it looks like "grandpaw" is coming to work. The last thing i want anyone to do is look at me and say someday "its such a pity that old man still has to work to make ends meet". I'm a full believer in that phase of life where you have worked your share, and you can do what you want until you meet your maker.

So what do you think Tom..... others? How much should i save for me and my family. I dont want to have to struggle in the here and now anymore than's necessary.However, I do have the discipline to do what's necessary to ensure a reasonable retirement. I'm searching for financial balance throughout my life and i'm just not sure what the prudent answer is.

Azanon

I think before you can clearly determine how you need to save, you must decide how you want to live when you retire. Assuming you want to have about the same quality of life as you do now, most suggest you will need about 70-80% of your income. Do you plan to travel, what hobblies do you have, are they expensive, do plan to continue into retirement?

You and your wife need to set a goal, start a plan, and then take steps toward your goal. Granted your goal/plan may change, but at least you won't be starting from scratch.

How must to save, as much as you possibly. 15-20% if you can afford, would be great. You and your wife have to set an amount that is right for you.

[azanon]

Well, i'm off to a pretty good start I think. I have roughly 55K in TSP/Roth IRAs so far. I think my goals are about as you said - i'd like to have total available funds around the 80% mark of what we earn today (Since i'm contributing 10-15% now, im already living on 85-90% of what i make now).

To complicate matters more, i have parents that are worth quite a bit (over a million), and even despite having 2 siblings, I stand a good chance of inheriting a lot of that, but as with life, there are no guarantees. My dad has been a frugle man for 30+ years now, and to be quite frank, I dont think he could ever emotionally bring himself to spending much of it. Its easier said than done for a lifelong miser to become a spendthrift simply because the money is there.

anyway...... ive heard you shouldnt base investment decisions on "possible" inheritances, so I dont.

When I drop us down to 10% savings, i get afraid that i'm going to push our retirement age to maybe 65 or beyond, or that the market just isnt going to do that well from 2004-2030. Conversely, when i shoot for 15% or more even, i feel like i'm putting the squeeze on my family too much, and my wife silently growls at me for being such a miser. I'm going to feel a little silly if I hit 60 and have 2 Million+ in investments on top of a paid-for mortgage, and have no idea how to spend that kind of cash considering that we are easy-to-please kind of people.

[tsptalk]

How much should i save for me and my family. I dont want to have to struggle in the here and now anymore than's necessary. However, I do have the discipline to do what's necessary to ensure a reasonable retirement.

Welcome azanon. Thanks for joining us!

Judging by your posts I've read, you seem to have a pretty good grasp of investing. The key to investing is to start early. Get a chunk in your account that can start churning and burning on its own. As your balance and earnings pick up steam, you eventually get to a point where your contributions are hardly significant.You always want to take advantage of any matching contributions but the total amount after that could depend on your current financial situation. If you live in San Francisco for instance, you may not be able to invest the max 14%but if you live in a small town in Wisconsin... you get the picture.

One good practice to build up your contribution amount when you are young (or old) is to increase when you get a COL raise. You won't even notice the difference in your pay.

Bottom line, get the max matching and if possible start a Roth IRA. We had a discussion here a few weeks ago about what is better, contributing to a roth IRA or maximizing your TSP.The TSP contributionsbenefit your current tax situation and a Roth helps yourretirement tax situation (you never pay tax onRoth withdrawals if you keep it in for 5 years and don't use the money before a certain age etc., but you make your contributions with after tax money).

Thanks again for stopping by. We look forward to hearing more from you.
Tom

[azanon]

Well, i could probably afford up to 15% of family pretax earnings, but it naturally will mean..... ole, a compact car instead of maybe a BMW 3-series, or maybe a private club/health facility membership vs public facilities, fancy house upgrades vs keeping it like it is, that sort of thing.

I guess, ideally, i'd like to have the same standard of living now, as i do in retirement. I dont want it tilted one way or the other. Balance throughout my life is my ultimate financial goal.

[tsptalk]

And you can use Warren Buffett's barber. It will save you a bunch. :D

[azanon]

Ok, well, howbout some of you guys just volunteer what % you are going with, if you are comfortable doing that. Putting your age down would help too :-).

(guess i'm expecting the older folks to be putting more away cause maybe they put it off :-) )

[thinks]

This is interesting. We're just starting out so maybe I'm doing things differently but I'll share my plan.

My savings in my mind is separted into different categories. I'm not sure if you were thinking of strictly extra money or not but for us our savings is....

1. Money in savings for insurace deduct. (car, car, home) We've met this goal $2,000

2. Savings for vacations... we need to discuss this and start... I feel this should be separted from the irregular payments that one has that comes up throughout the year.... What I mean is I save for our car insurance to pay it all at 6mths and other regular pmts (that are irregular, kwim?) that I know we have (car registration, etc). We've met the goal of the irregulars but I probably need to do some updates as needed. I'm going to look at it over this week and see if I've forgotten anything.

3. Also, I need to figure out how much E.R. money we need to have in case somethinghappened. Like money for mortage.... Anyone have any suggestions... I've read several different guidelines -- 3mths, 6mths, etc... We have now only $1,000 but I do know we'll start working on this. That's more than our mtg pmt.

4. TSP/Roth/Investments--- right now only TSP, Roth... eventually would love to do investments. We've met the goal of 1 Roth Max for this year and plan to do the other one too hopefully but we'll see.

Not sure if this is what you met and I'd have to look at over our numbers to give you a % because I'm not sure off the top of my head since I have everything separated. After rereading your post I'm thinking now you were only talking about savings for the future but I'll leave my post since I thought it all out and will make notes to look at things this week. Oh, also, right now my dh is only currently working so we're pretty frugal right now to accomplish these savings on his small salary.

I'm so impressed with some of you who've shared how much you've had in your TSP so I keep reminding myself we've just started and learning.

[azanon]

My question was for retirement funding only.

I actually use just one money market fund to accomplish #1-3 of what you listed there. I have to keep it more simple, simply because what you plan never turns out exact. Our goal is to put ~ $500 dollars in our general money market account for "intermediate-term expenses" per month, and let that account build up. The account for us covers emergencies/unpredicted expenses, vacations, large home items (furniture, TV, stuff like that), home repairs, etc. I basically just let it build up to 5-10K, and I feel pretty comfortable.

If i feel in the future $500/month isnt covering all that adequately, then i'll just increase the contribution amount.

I also keep a separate, taxable single mutual fund (currently aggressive stock) to save for my next car purchase. Sure interest rates are low now, but by the time I want to buy a newcar down the line, ratesmay be much higher, and i'd prefer to pay a good portion of it in cash, if not pay for it outright.

[zbwmy]

I have used the 75-80% pre retirement income as a basis for my retirement fund calculations for 15 years. It is not a bad figure and it gives you a ball park idea of how much to save. There are many onlineretirement calculators that will walk you thru how much to save to reach that goal. Recently I have discovered through a early retirement message board that mostpeople do not require 75-80% to live in retirement, while others choose to travel and are over 100%. So who knows, for now use the 75-80% and as you get older you will decide what you may want to do in retirement.

If you can, max out on TSP. If you can't, do what Tom said and every Jan when you get your raise, up your annual contribution until you max out. Once you have maxed the TSP start to work on Roth IRA's.

Your young enough that your TSP should be 100% C, S, and I.

Keep these questions coming.

[azanon]

Your young enough that your TSP should be 100% C, S, and I

I'm not a buy-and-hold investor, and IMHO, there's never an appropriate age where its wise to willfully lose a lot of money. "IF", or more correctly, "WHEN" the market once again gets into a position where it is very likely stocks will either lose for the year, or a crash is impending, my money will be elsewhere.

But for now, i'm with you - 100% stocks is the place to be.

[zbwmy]

azanon wrote:

Your young enough that your TSP should be 100% C, S, and I

I'm not a buy-and-hold investor, and IMHO, there's never an appropriate age where its wise to willfully lose a lot of money. "IF", or more correctly, "WHEN" the market once again gets into a position where it is very likely stocks will either lose for the year, or a crash is impending, my money will be elsewhere.

But for now, i'm with you - 100% stocks is the place to be.

Being able to identify the "if and "when" puts you in a unique category. Maybe even

in another profession. Rest assured, you will not have to worry about that 2 million

in your TSP with no idea how to spend it.:^

[azanon]

Who said i was doing it? I just share the opinon of most people here that their are better alternatives to buying and holding. Surely, 2000-2002 should give even the most devout buy-and-holder the reason to pause and reconsider that strategy.

[Rolo]

Hey!This is a good topic, Azanon.

azanon wrote:

The defacto answer i've heard is 10% of pretax income, but now i'm starting to wonder if that is still the way to go.

I think that is a good minimum. Of course, your goals and circumstances will dictate what you need to do. Personally, I am a glutton, and wish to live my gluttony to its fullest at some point, so I pretty much think of investment-funding first, then everything else afterwards. The better you delay gratification now, the more gratification you will have later...exponentially.

azanon wrote:
Also, there's constant concern that social security is dwindling...
behehehee...no concern here! I do not even consider it in my calculations. I call it a "Socialism Tax".

azanon wrote:
I dont want to have to work when i'm an old man...

I'm 33 and I don't wanna have to work now! So...the sooner I can get this over with, the better...

tsptalk wrote:
Get a chunk in your account that can start churning and burning on its own. As your balance and earnings pick up steam, you eventually get to a point where your contributions are hardly significant.
Yup! "Getting the jump on it."

Do not just think "money", but think of "moneytimes time". Reinforcing what Tom said, time will put more money into your portfolio than putting more money does. hehe, andTom is right, Einstein did say "compound interest" was his greatest discovery of the twentieth century. (Einstein said a lot of neat things.)

azanon wrote:

I'm not a buy-and-hold investor, and IMHO, there's never an appropriate age where its wise to willfully lose a lot of money.
haha, I like that!

azanon wrote:
..."WHEN" the market once again gets into a position where it is very likely stocks will either lose for the year, or a crash is impending, my money will be elsewhere.

This is part of what I meant by "circumstances will dictate what you need to do"--macroeconomic circumstances as well as personal ones. I started just before the bull came back with a vengeance and was glad I happened to fall into it at that time. With it nearly impossible to make a mistake (I still found some ways, heh), I put everything I could into the market knowing that this is an infrequent opportunity, andthe fun-factorwasnot unlike going to a store and shopping. During market lulls, I'll take some profits and go buy PT stuff.

[azanon]

Well, i decided on 10%... for now (plus my house). From 25-32, we did closer to 15%, to be honest. I do have a really great, and secure job, and my wife is also in a great field and very dependable. I also have a pension, and we'll both qualify for Social Security.

The extra 5% that used to go into retirement, is now going to go into my American Century Ultra (non-retirement) fund, aka my Subaru WRX STi fund :-).

[Rolo]

azanon wrote:
aka my Subaru WRX STi fund :-)

hahaha...I like that! Those cars are pretty cool. Hmmmmm.... all.... wheel.... drive.... gghghghhhhghgha

Did you use a retirement income calculator to make your decision?

Great financial calculators here:

http://www.dinkytown.net/retirement.html

Then, use the reasoning that interest rates are going to rise, so it is cheaper to buy the Rex now! :D

[azanon]

Did you use a retirement income calculator to make your decision?

Yeah, but at our age (i'm 32, wife is 30), you know so much of it is an estimation. Since we started saving at 25, we are off to a pretty good start, and I dont think i'd risk hurting us too much by backing down to 10%. I'm sure you know this as well as I do.... very few people our age save that much in reality (last I heard the national savings average is 4-5%), so however bad off I may be when i'm 60, just about everyone else around me will be much worse off. Furthermore, for those that do save 10%, very few of those utilize stocks.

Having a defacto federal job, i dont see me exactly wanting to run out the door when by that time i'm a GS 12 (or better, step 10), and only work 36hrs/week. That's some serious jack to just walk out the door on.


Then, use the reasoning that interest rates are going to rise, so it is cheaper to buy the Rex now

Well, i wont buy until I have cash in hand, then I'll make the same assessment you did; decide whether its smarter to pay cash for it or finance it. Of course right now, financing is definitely the way to go, but interest rates are rising and i wont be able to afford this car for at least 2-3 years. Again, another pseudo margin/leverage account to finance.

I'm only going to be young once. And i look forward to my great grandchild sitting on mykneethen I tell them about howgrandpawwas hip even in his midlife, and had a beautiful new, grey 300hp, AWD Subaru race car that couldsmoke99.9% of the cars that pulled up beside me at a stoplight :-). (4.7 sec 0-60, 13 sec 1/4 mile, for those that dont know :-) )

[Rolo]

hehehe...my PT will be RIGHT on your tail...only looking much cooler. :D

I just remembered that you are talking about dual incomes, so your 10% has more $ than my 10%. Also, you get double the IRA's, which is 8.6% right there (2004 limits) plus your TSP and the fact that you started early (good on you). You are totally correct about most people not investing. I know so few who do.

Oh, and don't forget to fund for all the stuff you'll want to buy for the car afterwards! heh

[azanon]

I just remembered that you are talking about dual incomes, so your 10% has more $ than my 10%.

Yeah but that's all relative, meaning we're accustom to living on 90% of our combined incomes. If i maxed my TSP, and we maxed both Roth's, we'd go well past 15% of gross, considering the new limits are so high (and getting much higher). It makes me very suspicious that someday they will find a way to implement a wealth tax where IRA's will be fair game.

Well, i want to pay for the car with cash (or have the cash) because I know the insurance will be real high, the maintenance will be high (summer tires that only last 10K and over 200 a tire!), and mods if i want to mod it. But an STi is a tuner car right off the lot though :-). Its basically a tuner WRX, done by the factory.

[Pete1]

Ithink that I'm saving too much :shock: I am contributingthe max to TSP andan additional 7% to our Roth IRAs (total of 21%, TSP and IRAs). Additionally, I am payingback a TSP loan at an accelerated pace (about another 3%).Government match = 5%.Total annual contributions to retirement accounts =29%. When the TSPloan is paid off, (about 1.5 years) I will probably keep the dough as discretionary income rather than adding to retirement savings. I am also considering keeping all future payraises forfun and games now rather than later. I know that this goes against the popular financial press in that most of the "experts" seem to push folks to put all found money, payraises, etc. into retirement savings. With the new limits for TSP, I could put a lot away for later but I think that there comes a point when enough really is enough.

I amfinishing up a very good book titled "Get a life, you don't need a million to retire well" by Ralph Warner. The author makes some good points about oversaving. The author notes that focusing too much attention on the retirmement nesteggrather than on having things to dowhen you retire is probably a mistake. Personally, I want to have theit all - a romantic relationship with my wife, a retirement nestegg,good family relationships, good friendships and a lot of things to do as well.He pokes plenty of holes into the popular myth that you need at least a million or even 2 million to retire comfortably.A very balanced book.

[Frizz B.]

I look at it this way, I would rather be broke now and being healthy, than to be broke when I am old and retired. My philosophy is, I am going to be a Millionare when I retire, but I will be broke till I get there. The other philosophy of mine was to get to $100,000 as soon as possible, to be top loaded when you are young will make you more money in the future.Use the tsp calculator and put in $100,000 and 20 year to retirement at 12% per year = $1,089,255. Then do the same with $50,000 @ 20 years @ 12% =$544,627. That extra $50,000 in the earl years, made you almost $500,000 extra dollars. So again, start hard and strong for a good life in retirement. Even if you think you can't do it, you would be suprised that you can.

Frizz B.

[Pete1]

It's a myth to believe that you will be broke if you stay with the Federal government for as long as you are suggesting.FERS employees,will receive a modest pension (about 1% for each year of service) and Social Security (or the Social Security offset if you retire prior to age 62). This should amount to around 50% of your current income (assuming 30 years of service). Okay, so that leave's a 50% gap as compared to your current salary and so, you definately need contribute a decent chunk to TSP tocome close to your current salarybut how much? The government gives you an additional 5%plusearnings from the market assuming that you put in at least 5% to TSP. So between the FERS pension, government matching, and social security/FERS offset, the government contribution plus earnings should come in around 60-70% of your current income.Let's assume you put in 10% plus earnings. Now we're up to 70-80%. You will not need to contribute to TSP when you retireso the gap isabout 10-20%assuming only a 10% rate of savings.Not rich but not broke.

[Rolo]

I'm with Frizz on that one and Pete (naw, you're not saying too much at all!) looks like he has a good game goin' on.



Paying now = exponentially more fun later.

Fun now = exponentially more paying later.

The younger the money, the more it is worth, for money ^ time = retirement / time; meaning, the sooner you invest money, the more valuable it is, which determines how well you retire and how soon you retire. It's not just money, it is time and money, with time being more valuable than the two.



A little bit of money over a lot of time will yield more than a lot of money and a little bit of time.

Don't get me wrong--I'm not saying that we should all live totally deprived lives for the sake of retirement (unless it is that important to you). However, I am saying that any fun (cost-wise) does cost you much later. A clear understanding of that is important for retirement planning and helps to be motivated in your planning and execution. Yourown goals should determine how much fun and paying you choose to do.

In your case, Az, I would pose a question to ask yourself:If you are used to consuming 90% of your income now, then what is your retirement appetite really going to be like?

Also add in there that my PT will have 300+ bhp by year's end. I really meant, "right on your tail", so plan for some mods. :D {snicker}

[Pete1]

There is no question regarding starting early. A 22 year old putting in 5% and getting matched 5% will most likely be eons ahead of the 40 year old just getting started. In fact, Ric Edelman's books have examples thatshow that the 22 year old would end up with more at retirment than the 40 year old even if only contributing for 8 years (age 22-30) and never adding anything more. Start early! Start Early!

But also, enjoy life!Any of us could go at any time. You can't take it with you.

[Frizz B.]

I did not deprive myself, but I did do the 10% at the very begginning until I hit my goal of $100,000. Now I contribute what best suits my needs at the time. But I knew I wanted my base of the $100,000. And now that I am able to do the trading online almost daily, I am so glad that I got the base to play with it. It is nice to see when you make $12,000 in a 5 month period, and sometimes not nice when you lose $6,000 in a 2 week period. But nice to see I got that $6,000 back with a little more.

[azanon]

I'm with Pete. There's a lot of scare tactics becoming pretty prevalent today, that's going to have some folks with millions in the bank when their old, and wishing they hadn't deprived themselves so much from 30-60yrs old. Pete's math is pretty much on cue.... 30 yrs is 30% of what you make, social security adds another 20%, not having to fund a retirement adds another 10%, that only leaves you with 40% to replace, minus the less it generally costs in retirement. Folks, saving 15%+ at 30+ years in stocks is overkill.

Sure time is a greater force when it comes to money, but there's one variable in the equation that dampers the beauty of time. Time also crooks a smile at you, and you get older, slower, and more likely to die with each passing day. Trust me, time has had the last laugh on everyone. I'll be damned if i'm going to get cancer and die in my mid 50s and have an overkill bank account. I'm not going to gamble that I will live till 90.

It seems logical to me to estabish your finances for balancing living through all stages of life. I have a 10-month old, and i would like him to know of his dad as a guy who lived within his means, not as a miser or as a spendthrift.

Let me tell you what will happen to you if you become a miser for your whole career; you get so brainwashed into preserving and making money, that over the years, and years turning to decades, you literally forget how to spend money, and when you do, the enjoyment just isnt there anymore. My dad's worthover 1 milin a small town. I can assure you, he hasnt the least clue what to do with it now. You dont just snap your fingers and all of a sudden your view of money changes from what it was for the past 40 years. You know, the author of "Millionairre Next Door" practically acknowledges this to be fact, with the example of the millionairre that gave back the expensive car that was a gift, simply because he could no longer even identify with it.

Also, i can think of about 5 people that were close to me in some form that died from 55-59. How many of you are married men too? You know you'll croak earlier than your wife, and the only one that will benefit is your old lady for an additional 15 years. The joke will be on you, and she'll smile all the way to the bank.

Azanon

[Frizz B.]

By no way am I a miser. Both my kids play classic soccer, both are now playing the sports that they like, I go to Sparks Nevada every year for the doubles tournament in volleyball, I am not planning on Social Security to be there when I retire, the way they talk it won't be. I just worked odd jobs at the begginning to get my base of $100,000 as soon as I could. I put the max in that was allowable and now I put in what is comfortable. I also have a history of long life, my parents are in their late 70's and their parents lived in their early 80's. So to me it is very important not to live life in my retirement years the way my parents are living now, semi comfortable but not well off. I do not want to have to worry about not having money in my retirement years.

If your history is to die of cancer in your early 50's by all means spend now and don't worry, because you might not make it to retirement. If you believer that you will live past the retirement age, like I do, save now and live long and prosper.

[azanon]

I was only speaking generally - not calling anyone a miser. For what its worth, i've sorta decided myself on the defacto 10% - which is what you said you save(d) right Frizz? Even that is more than what most folks do (ask around).

[Frizz B.]

For myself, I would do the max, which at the time was 10 %, now 14 % if you are at all able to. It is my philosophy to put as much as possible as soon as you can and let the interest start to work for you. Once you hit a comfortable amt., mine was $100,000, I then pulled back. Again, this is my philosophy:

Everyone is entitled to their own opinion, even if it is wrong.
My 8th grade teacher told me that one, and I have lived by it and tought this to my kids ever since. If someone doesn't agree with the way you think, be happy for them and let them think the way they want to think.

[Rolo]

hehe, Frizz, yes I have a tendancy to finish that saying for people.

One last thing to add to the "How much do I save?" question: ROI (Return On Investment) and CBA (Cost/Benefit Analysis).


Matching contributions are worth the most, no brainer, max it. Huge ROI there.
Unmatched TSP/Traditional/SEP IRA provide an immediate tax break makinga lesser cost/greater benefit. Max it out.
Roth IRA's have a better ROI than taxable investments, one should fully take advantage of that.
Taxable investments can have tax-deferred profits if you hold onto them for a long time--bottom rung on the ROI/CBA ladder.
If 12% of your income funds the first three and youinvest 20% total, then the first 12% is doing more with less effort than the last 8%. If you only invest 8%, then 4% of your income is essentially being wasted since your are missing out on those significant advantages; you have reduced the value (return) of those dollars by not letting them work more easily, yet more effectively. You are not just giving up that 4% in cash, but all of the advantages that go along with it.

An effective strategy usually produces better results than mere brute force.

[azanon]

If 12% of your income funds the first three and youinvest 20% total, then the first 12% is doing more with less effort than the last 8%. If you only invest 8%, then 4% of your income is essentially being wasted since your are missing out on those significant advantages

Money not invested in a retirement plan is not "wasted" (completely lost). Sure, it wont be maximized mathematically cause you wont get the tax breaks and the tax deferred growth, but outright lost? Nah.

Some people like having a portolio blend of tax deferred and non-tax deferred accounts; even if they haven't maxed the former. Why? Well, obvious reasons. Tax deferred accounts normally have stiff penalities (with some exceptions) for removal prior to 59 1/2. Tax deductions and tax deferred growth are wonderful, dont get me wrong, but they are not the only factor to consider when you put together your overall portfolio.

[azanon]

[quote]Again, this is my philosophy:



Everyone is entitled to their own opinion, even if it is wrong.[quote]



I imagine everyone here is in agreement with that philosophy. If anything, I imagine everyone else is motivated by the same thing I am; the opportunity to share what you've learned with others as opposed to just being selfish about what you know. Naturally, you can take it or leave it.

[Rolo]

azanon wrote:
Money not invested in a retirement plan is not "wasted" (completely lost). Sure, it wont be maximized mathematically cause you wont get the tax breaks and the tax deferred growth, but outright lost? Nah.
er...



wast·ed
adj.
1. Not profitably used or maintained: a wasted inheritance.

waste
v. wast·ed, wast·ing, wastes
v. tr.
1. To use, consume, spend, or expend thoughtlessly or carelessly.
2. To cause to lose energy, strength, or vigor; exhaust, tire, or enfeeble: Disease wasted his body.
3. To fail to take advantage of or use for profit; lose: waste an opportunity.


That is the word I wanted, not lost, but wasted, not necessarily squadered.

[Frizz B.]

I also teach my kids that this philosophy is for life in general. Basically don't tell your friends that their opinion is wrong, whether you believe in what they are saying, please let them say it as long as no one gets hurt in the process. If it is their belief then they are entitled to it as long as they do not hurt anyone, mentally, or physically.

[azanon]

I understood you the first time, Rolo. My taxable accounts have been doing quite nicely since jan 03 - clearly "profitable", and in no way characterized accurately as "wasteful" by either your or my definition.

Putting money to good use, and example of which would always including a widely accepted investments (ex: a taxable stock account), could never be accurately characterized as wasting your money. There is an offsetting gain for using taxable accounts - that being you dont have to wait 28 years to use the money! (in my case). Again, retirement accounts are not the be-all, end-all.

In theme with this thread, call that my opinion if you will :-). hehe

[azanon]

Sorry, i had you a response frizz, but it seemed to have disappeared a few minutes after I posted it. I'm too lazy to retype it.

[Rolo]

azanon wrote:
Putting money to good use, and example of which would always including a widely accepted investments (ex: a taxable stock account), could never be accurately characterized as wasting your money. There is an offsetting gain for using taxable accounts - that being you dont have to wait 28 years to use the money! (in my case). Again, retirement accounts are not the be-all, end-all.

Oh! nono...lemme try to explain that better: If you do not take full advantage of any of the perks that come withinvesting(to include a taxable account) to the extent that you can, whatever shortfall you have is a lost opportunity, a waste of money.

hmmm...I dunno of that explanation helps, heh.

I agree that there are times where a taxable account would be better than an IRA, few, but it happens, particularly since I put stocks in my taxable account and mutual funds in my IRAs so I do not overlap on the tax breaks and waste those tax advantages.

Sorry about your dropped posts; I like reading them.

[azanon]

ok that's fair enough.

So you buy stocks for taxable accounts? I want to do that too, but not sure i have the guts.

I'm wanting to make a quick buck and get my sti early, but i know all the experts say just dont do it. I'm eyeing DAL right now - poor stock has gotten beaten on by everything imaginable. Folks are betting they wont make it (meaning impending bankruptcy) and the price is reflecting that belief, but I think they're wrong. I'm just not sure i have the guts to put my money on that educated belief.

[Rolo]

Ya, my Scottrade account is half of my portfolio; it has two mutual funds in it and 4-6 stocks in it (I posted the stocks elsewhere).

There are so many strategies to buying stocks that there should be no problem with finding a method you like. I buy some for quick gains, based mostly on technical analysis, and some for steady appreciation, and one for the killer dividend.

Withhow-to typebooksand the plethora of online resources, you can turn a nice profit with some time and effort. It is also a way to test your mettle; personally I like to try to master something. Buying stocks, for me, is like going shopping, both of which I enjoy. It is also like the many strategise-and-build computer games.

My brokerage account is my early retirement account,capital for when I need it,and play money. I have a debit card and checks with it, but I have yet to withdraw from it; if I splurge, I just won't contribute as much, or not at all, to it at that moment.


"I'd rather fail at something difficult thansucceed at something easy."
-Jesse James

[Rolo]

azanon wrote:
I'm eyeing DAL right now - poor stock has gotten beaten on by everything imaginable. Folks are betting they wont make it (meaning impending bankruptcy) and the price is reflecting that belief, but I think they're wrong. I'm just not sure i have the guts to put my money on that educated belief.

Ouch, ya, I wouldn't bet $ on it. I would keep an eye on it to look for any promise of it being a phoenix stock. Their debt ratio is over 20:1 and they are not making a profit.

You should also watch their best competitor JBLU, which has done very well. They are losing money right now also, so it may drop to a buy point.

Start with less risky stocks to get comfortable and get a feel for it, then work your way to other types of stock.

[tsptalk]

One of the first stocks I ever bought back in theeightieswas Pan Am. Who? Exactly!

They were also a cheap stock but a company I had heard of all my life. It is hard to imagine Delta going out of business but that's what I remember thinking about Pan Am. It is a risk for sure. I had mentioned to azanon that he could buy some longer term options (or leaps) if he wanted to take a shot. It is still a risk but you can minimize your potential loss by limiting your investment. Either way it is a roll of the dice. That said, if they make a big turn around, the potential for a huge gain is there.

[azanon]

Safer plays i'm liking now is the dow dog SBC, I like Lucent Technologies "turnaround" (LU), and i've always though nvidia is an especially strong semiconductor company, (nvda) and still reasonably priced for their strength.

Delta could eat it too, but they have massive income and if you look at quarter performances for the past few instances, the losses are decreasing and the sales are starting to rise again. They seem to be making enough income to pay their debt in the meantime. Like i said, "if" they avoid bankruptcy, its practically a given that their stock will be considerably higher than what it is now. Its aroulette table where most of the squares are red, and the house is letting you bet red, and if you win, the payout will probably be greater than double your money. but the stocks been depressed viciously (like all airline stocks) by 9/11, the war, oil prices, pilot union arguments atm, and discount airlines.

[azanon]

Also add in there that my PT will have 300+ bhp by year's end. I really meant, "right on your tail", so plan for some mods. :D {snicker}


Yeah, but what's that sucker weight? it looks huge. Acceleration is two variables: horsepower/torque and weight. Also, at high speeds, i think i'd have you on drag coefficient. As for twisties, it'd be no contest (subaru AWD, low/wide profile). The STi is a driver's dream machine. I'm also eyeing the Evo VIII too, havent decided.



only looking much cooler.

Please.... ;) I think "gangsta" when i see one of those. I assume all those drivers have one of those 60s machine guns with those disc shaped magazines in the trunk, hehe, so i'd probably never race one as i might make the driver mad.

[azanon]

In your case, Az, I would pose a question to ask yourself:If you are used to consuming 90% of your income now, then what is your retirement appetite really going to be like?


It all comes down to the unknown, and the 2 million dollar question for me. I'm just not sure that I would "want" to retire if i could. I'm getting paid an insane amount of money to do mostly what I'd do for fun otherwise! So what if i save 15-20%, then hit 60 and clearly have enough to retire. Quit my job when i'm making probably 80K or more then, working 36 hrs a week doing something i love? Speak of waste - that would be waste.... To have oversaved, andcontinue working for an income I dont really need (cause the alternative is to sit and home and twiddle my thumbs), cause it'd be equally crazy to turn down that kind of money for minimal effort.

I do various extracharicular (sp) activites now, but you know what? Every single one of them are strucutured around a normal working day because..... you guessed it.... most people work. So if i end up retiring before all my friends do, i'll just end up being all by my loansome. Also, speaking of exponential, saving 15-20% might get you a very large account, but if you run the models, in reality it only buys you 5 years earlier retirement, and 10 years MAX early retirement. The exponentiality of that works both ways. So 20-30 years of living miserly just to quit 5 years early. Doesnt seem so attractive anymore does it?

Once you quit, they ain't giving you your job back. There's no undoing it.

[Frizz B.]

If everything goes right, I will have more money than I will need in my retirement years. So this is my plan. #1 I have 4 children and instead of waiting till I'm dead for them to get an inheritance, I plan to give them each a certain amt. of cash each year. #2 I plan to start a college fund for my grandchildred and their grandchildren. Right now I have allotted 10% of my tsp dollars to be put in the college fund should anything happen to me. When I do have grandchildren I will start them out with a $1000 on their birth, and try to contribute at least $200 on Birthdays and Xmas. So I do have a reason for my insanity. I really do not want my kids and grandkids to scrape by like I do.Hopefully I can start a trend in my family and all of my children will also contribute to the account.

[tsptalk]

Frizz B. wrote:
If everything goes right, I will have more money than I will need in my retirement years. So this is my plan. #1 I have 4 children and instead of waiting till I'm dead for them to get an inheritance, I plan to give them each a certain amt. of cash each year. #2 I plan to start a college fund for my grandchildred and their grandchildren. Right now I have allotted 10% of my tsp dollars to be put in the college fund should anything happen to me. When I do have grandchildren I will start them out with a $1000 on their birth, and try to contribute at least $200 on Birthdays and Xmas. So I do have a reason for my insanity. I really do not want my kids and grandkids to scrape by like I do.Hopefully I can start a trend in my family and all of my children will also contribute to the account.
I'm not sure how I feel about that. I think kids that are given money, whether through a big inheritance or for a college fund (not an earned scholarship) end upblowing it andtheyend up with a "gimme" attitude in life. It has been my experience that people I know that earned their own way in life, appreciate what they have more, including an education, and are more likely to handle money with care and respect.

I have ample life insurance for my family but not excessive.I want them to live comfortably if I die, but I don't want them hitting the lottery.

Just my opinion,
Tom

[thinks]

I would like to hear more about the college savings plans you have Frizz and also about the life insurance, Tom. We don't have kids yet but probably some day so that's what got me thinking now to do it at time of the birth would be the best plan. I think that would be a great plan actually, Frizz. I know someone else who's father saved money for the grandkids for college and it's a priority and something valued more than others who are assuming to go and will but it's not as meaningful, if you know whatI mean.?. For my dh and I were working our way thru college now and our growing up home lives weren't good so I guess, from my perspective when you've had it rough and hear about plans like this you can relate to how special and loving it is.Maybe Tom you've had experiences like you've mentionedso you feel it's not the best plan but I guess I've never ran into an instance like that but Iunderstand what you're saying.

[tsptalk]

azanon gavesome wise advice on insurance in the insurance forum. I believe he said "If it ain't term [insurance], it's a rip off...

http://www.tsptalk.com/mb/forum26/171.html

Get term insurance while you are young and it can be dirt cheap.

[azanon]

Yeah, i'm paying 9.86/month for a 100K dollar term policy. Yeah its small, but my wife is still young (and gorgerous), and educated so she could find another man, and i just have one child. That in addition to the death benefits under FERS.

For your child's college, i recommend what i'm doing; I have a 10-month old and i started a 529 college savings plan for him a couple months after he was born, contributing 150/month to that automatically. Its basically a stock mutual fund that functions just like a traditional IRA (federal and state tax exempt on contributions and earnings, but pay taxes in the end). To be state tax exempt though, you have to choose a 529 plan sponsored by your state.

Using what Rolo says about not wasting money, i think i'm using it effectively in that case. Much easier to just pay 150/month for 18 years, than have my son face 2022 college tuition costs and wind up having to do something drastic, like GI bill, or me going to the poor house trying to pay for it late. Considering my combined federal and state tax rate, the way I see it the Government funds 50 of that 150 just for starters.

[tsptalk]

azanon wrote:
I'm eyeing DAL right now - poor stock has gotten beaten on by everything imaginable. Folks are betting they wont make it (meaning impending bankruptcy) and the price is reflecting that belief, but I think they're wrong. I'm just not sure i have the guts to put my money on that educated belief.

I thought it was interesting that today Jim Cramer at thestreet.com mentioned buying stocks that are going down. I believe he is talking about buying more shares of a stock you already own that are now selling cheaper. I'll give them a plug and hope they don't mind that I am using some of that article here...

I love to buy down. Love it. To me, it's no different from buying when something's on sale at a store. I don't look at a chart to tell me I should pay $1 for three cans of cat food. I don't need to suspect that the cat food's gone bad. I just need to think about whether I will need that cat food and whether it fits my needs. To me, three for a buck is a bargain, and I want to buy bargains. If the cat food were to go to four cans for $1, I would load the SUV up with the stuff and worry later about where to put it.

... I emphasize the empirical because so many of you seem to subscribe to some sort of dogma that says, "Averaging down is a sin." It is true that if you bought something for a trade, averaging down can be a sin. But I can't trade. I am only allowed to invest. So I presume I will get my chance to buy things cheaper, and if I don't?
Jim Cramer -http://www.thestreet.com (http://www.thestreet.com)

I know this goes against William O'Neil's belief that you dump falling stocks before you have a big loss on your hands. Just thought I'd give you the other side of the coin.

[azanon]

That's the viewpoint i'm coming from. We've all heard buying a stock on the way down is like "catching a falling knife". Well, that may be true, but there's other things true as well. Delta went for sale on the open market in 1980! for 10 dollars a share. You can now get those exact same shares (no splits) for 6 dollars. Delta had their first flight in 1927! Also, note they had a nice, healthy, slow climb in the 80s and 90s to about 71 dollars a share.

Sure they arn't making money and had to go in debt to stay afloat, but how much different is that than a small cap who's never made a profit before, but people buy them because they hope they will someday. As Delta's CEO said in his late april address this year, the company's faced many adversities along the way that threatened the company, but time and time again they prevailed.

There are no guarantees in life, so I guess you could say life itself is a gamble. How many of us had the american dream, got a big loan, and opened up a business putting money on the line. Investing in Delta would be no different, except they've been there before, and much of what has happend is just irregular circumstance (9/11, fuel prices) than they'll just have to push through.

Still debating it, and watching the stock daily. I admit some greed on this, but it just feels right.

[Rolo]

azanon wrote:
Yeah, but what's that sucker weight? it looks huge. Acceleration is two variables: horsepower/torque and weight. Also, at high speeds, i think i'd have you on drag coefficient. As for twisties, it'd be no contest (subaru AWD, low/wide profile). The STi is a driver's dream machine. I'm also eyeing the Evo VIII too, havent decided.



only looking much cooler.

Please.... ;) I think "gangsta" when i see one of those. I assume all those drivers have one of those 60s machine guns with those disc shaped magazines in the trunk, hehe, so i'd probably never race one as i might make the driver mad.


heh, it's heavy, 3305 lbs. Drag coefficient of .379 (a rounded brick). I will be replacing my suspension within a year. I am shooting for mid-to-high 13's. People expect a sports car to be fast...but a PT? muaha...it eats rice for breakfast.

'60's machine guns...hehe..."disc-shaped magazines"...hehe

You are thinking of a 1928 Thompson ("Tommy gun") with a 50-round drum, and in the Prohibition Era. Since it shoots a .45 (ouch), it's a sub-machine gun. Savvy up, G,it's a primo piece, not no coffee-and-donut bean-shooter. heh. I grew up with one, but well after the Prohibition Era. :cool:

[line]

Okay...hmm...don't wanna threadjack...kids...college...er....529 plans...reconsider, for they will effectively render your kids ineligible for grants and scholarships due to their having assets, etc. You may want to keep the funds in a regular investment account.

"The world owes me" vs. "I rose from the ashes" mentality. There is a balance to be found there. If you give them everything, much can be taken for granted and no financial lessons to learn. Give it to them, but make them earn it. That way they have drive, but not have to fend for themselves.

[line]


Yes, you may be in for a Harlem sunset by catching a falling knife, but over the long term, you could be buying on a killer dip. DAL may be at a disadvantage since it is essentially starting all over, but at a disadvantagewith a huge debt. "They did it before" but they could not stay there. Add to the mix that they have fresh, new competition. Plus, I hate flying Delta, they are never on time and their planes look like crap;they just suck and I am not alone in avoiding them whenever possible.

You could be right, but I would bet that they would be another Worldcom, stockwise, too much downside risk.

[azanon]

529 plans...reconsider, for they will effectively render your kids ineligible for grants and scholarships due to their having assets, etc. You may want to keep the funds in a regular investment account.

That's a myth. 529 plans are considered the parents assets, not the child. A possible reason for that is that they really are the parents assets. A 529 plan is not a trust.

Taken from collegesavings.org:

How will participating in a qualified state tuition program affect financial aid eligibility?
Any investment may impact a student's eligibility for need-based financial aid. Financial aid treatment of investments has changed through the years so it is impossible to know how assets will be treated in the future. Current financial aid formulas only include about five percent of parental assets (any investment a parent owns, including 529 savings / investment plans) in the determination of how much the family is expected to contribute to a student’s college education, each year.

Additionally, it is uncertain as to how much or what types of financial aid will be available to families in the future. But one thing is certain, a family that has made the sacrifice to save for their children’s college education typically has more options available when their children are ready to attend college.

The College Savings Plans Network is actively working with Congress to clarify the federal financial aid treatment of 529 plans, and to obtain favorable treatment of the programs.

[Rolo]

Ahhhh! You did consider it, then.

Now that you mention it, I do remember the information I saw did point to the vagueness of 529 plans vs. grants, etc. I'll never have kids, so I do not pay much attention to those.

[Frizz B.]

Rolo, you can adopt my kids as your mission in life.

On the 529's, if it does come to the pt of hurting grants, I have heard that you can name any child for this fund, and at anytime change the name to whoever you want it to go to. So if you use the youngest child or grandchild and then when the oldest is ready for college, you could change the name to that child. Have not looked enough into this, so this is just a though.

[azanon]

Ahhhh! You did consider it, then.

There are very, very few things i do without careful consideration. I'm not going to pay 150/month for 18 years only to later find out that was a mistake.

[azanon]

On the 529's, if it does come to the pt of hurting grants

This wont be a concern of mine. Any child of mine definitely wont qualify for a grant or any other needs based scholarships. One's income has to be relatively modest to qualify for these.

[Wimpy]

azanon wrote:
Let me tell you what will happen to you if you become a miser for your whole career; you get so brainwashed into preserving and making money, that over the years, and years turning to decades, you literally forget how to spend money, and when you do, the enjoyment just isnt there anymore. My dad's worthover 1 milin a small town. I can assure you, he hasnt the least clue what to do with it now. You dont just snap your fingers and all of a sudden your view of money changes from what it was for the past 40 years. You know, the author of "Millionairre Next Door" practically acknowledges this to be fact, with the example of the millionairre that gave back the expensive car that was a gift, simply because he could no longer even identify with it.





How much should one save?

I thought the Millionaire Next Door was a great read and I agree with most of it. My take on giving the car back was a little different than Azanon’s. The person used in that example primarily didn’t want the increased OVERHEAD (insurance and maintenance) associated with the high end vehicle. Plus, he couldn’t picture throwing his freshly caught fish in the back seat of a ROLLS ROYCE. The built in admonition, in this example, is that we need to be careful of what we give to others as gifts and also what we accept. Even though they may be getting something for free that something may end up costing them more, in the long run (increased overhead), than they can really afford. Example: giving a kid a tennis racket would incur much less ongoing overhead than say giving them an X-Box 360 requiring additional and expensive software purchases. Tennis balls are a lot cheaper and with a little sweat equity you can find abandoned tennis balls in the grass and bushesoff the court. Not to mention the side benefit of getting a little needed exercise.

Azanon and others discussed the ever elusive issue of balance. In other words, how do we dial in the appropriate tempo and intensity of our savings from a ‘balanced’ perspective…balancing current needs and wants against future needs and wants? It would naturally seem that surplus money left over after the basic necessities of life are met would conceivably be available for immediate wants or future needs and wants or some combination of all three. But the problem is…everyone has just a little bit different take on what comprises the necessities of life. Most agree that food, shelter, transportation, and clothing are the basic necessities of life, but most would disagree[/i] on what constitutes an appropriate level of quality in each of these categories. Both a pickup truck with a fully stocked self-contained overhead camper OR a fully stocked 5 bedroom 5 bathroom home with a Mercedes, BMW, Hummer, and a Vette :)in the 4-car garage…meet the basic necessities of life.


Most, no matter what their income levels, are living at or above their means, if the current savings rate is an accurate indicator.

I don’t think this topic can be adequately discussed without introducing ‘energy management’ into the equation. Essentially, while we are young, we convert our energies (mental and/or physical) into income for immediate or future use. As we age, the energy we have available for conversion into income becomes more susceptible to disease and dysfunction. Since the probabilities for disease and dysfunction increase as we age, a good argument can be made, as some have previously suggested in this thread, to strike while the iron is hot[/i][/b].

Another issue associated with this topic, that can’t be discounted, is ‘peace of mind’[/b]. If our ultimate goal is to have ‘just enough’ assets to carry us through to the end of this life, versus a significant surplus, how much is that going to cost us in ‘peace of mind’ knowing an event could upset the apple cart?

I would also like to know who came up with the ‘idea’ that saving and/or investing money isn’t ‘fun’? A lot of people approach saving money the same way fat people approach diets. The first 3 letters of the word diet is DIE [/b]and that is what most fat people focus on. And many approach saving money with the same negative connotation.


I would suggest a number of things contribute to that negative aura around the subject of ‘savings’ and ‘die-ts’. The first thing that comes to mind is that ‘die-ts’ and ‘savings’ are generally ‘short-term’ solutions to a longer-term problem. People don’t usually become poor or fat instantaneously. Their negative financial and/or physical condition is the result of poor choices (spending or eating too much) made over an extended period of time. To apply a short-term solution (crash die-t - wanna be skinny tomorrow; or crash savings- wanna get out of debt and be rich tomorrow) to a long-term problem causes intense feelings of pain and deprivation. I believe crash die-ts and[/i] crash savings programs can lead us away from out intended destinations. Both approaches can lead to depression and binge eating and spending patterns.

Lifestyle changes lead to a better and more predictable outcome than the ‘binge’ approach. Lifestyle changes come about as we associate a ‘positive’ versus ‘negative’ connotation to the behavior change we are contemplating undertaking. Essentially, it is a matter of what we FOCUS on. If we focus more on what we are giving up rather than what we are gaining, we tend to self-sabotage our efforts and rationalize why the die-t (food or financial) wasn’t a good idea to begin with. I’ve known people who have spent an entire lifetime of misery in the fat trading channel of ‘binge’ dieting (food or financial) and who carry enormous amounts of guilt and shame for their apparent lack of discipline or success. Both end up wrecking their physical and financial future by subscribing to the ‘no pain, no gain’, approach versus a more long-term ‘train, don’t strain’ approach.

Although I feel a good argument can be made for ‘striking while the iron is hot’, I also feel the long-term ‘train, don’t strain’ approach will prove to provide the most long-term benefit.

In the quest to determine how much to save we need to ask ourselves, “When we finish this race to the end of life, how do we want to look as we cross the finish line?” Do we want to have plenty of financial ‘kick’ left at the end or do we want to have that ‘spent’ look?

Ultimately, the choice is ours. That is what freedom is all about…choosing our own destiny. The more financial assets we have…the more OPTIONS we have. The more OPTIONS we have…the more freedom we have. FREEDOM is FUN, in my opinion.

You can have two factory workers working side by side with one being FREE while the other one remains a wage and/or debt slave the rest of their life. Again, the choice is ours…along with the consequences.


I believe saving in moderation (5-10%), especially for young families just starting out, is best…with slow and incremental increases leading up 30-40% + around mid-life and to retirement. And when I say incremental, I MEAN incremental. The increments should be less than one would normally desire so when the next raise or promotioncomes around the individual will be earnestly looking forward to raising the savings bar one more little notch. And the occasion should be celebrated.


Even in retirement I want to save a minimum of 10% (probably much more).

Last but not least, there is nothing wrong with passing a little of the FREEDOM legacy to our kids…they will certainly need it.

Everyone looks at FREEDOM a little differently and, obviously, FREEDOM isn’t for everyone. And, if everyone one was FREE, it probably wouldn’t mean as much. Ultimately, FREEDOM isn’t something that is conferred, granted, or inherited, but rather is built one step at a time with the choices we make. We can choose an overabundance of depreciating assets (diminishing fun) that limits our future options or we can choose an overabundance of appreciating assets (fun squared, in my opinion) that compound and re-generate and provide self-perpetuating options for the future. Choose your fun!

The best and most inspiring book I’ve ever read about saving was titled The Richest Man in Babylon. You can’t set this book down after having read it and not want to take action immediately, but the caution is to begin slowly and progressively. Increase the tempo and intensity as the savings muscle becomesconditioned to bear the load.


Great thread Azanon!

[vicky]

Wimpy wrote:
How much should one save?
.................
Even though they may be getting something for free that something may end up costing them more, in the long run (increased overhead), than they can really afford. Example: giving a kid a tennis racket would incur much less ongoing overhead than say giving them an X-Box 360 requiring additional and expensive software purchases. Tennis balls are a lot cheaper and with a little sweat equity you can find abandoned tennis balls in the grass and bushesoff the court. Not to mention the side benefit of getting a little needed exercise.
...............
But the problem is…everyone has just a little bit different take on what comprises the necessities of life. Most agree that food, shelter, transportation, and clothing are the basic necessities of life, but most would disagree on what constitutes an appropriate level of quality in each of these categories.
Not that anyone asked but all I want is a room of my own.

(BTW, in order to play tennis the country club fees can be quite high or just the expense of transport to the courts and the hourly fees.)

vicky

[Wimpy]

Vicky,

If you kept your receipt, the store will refund your money on the X-Box :D

-----------

True, country club tennis is expensive but why play there? I've always used the public park courts and our taxes have already paid for those. For the most part, we have lived within walking distance to a court...or could ride a bike or catch a bus there. I remember spending hours in the parking lot next to the local elementary school batting balls (we found at the local court)off the brick wall (when school was out of course) with friends.

Hey, if a person truly wants to economize...and still have fun...there isa way.

[Smitty_]

Pete1 wrote:
It's a myth to believe that you will be broke if you stay with the Federal government for as long as you are suggesting.FERS employees,will receive a modest pension (about 1% for each year of service) and Social Security (or the Social Security offset if you retire prior to age 62). This should amount to around 50% of your current income (assuming 30 years of service). Okay, so that leave's a 50% gap as compared to your current salary and so, you definately need contribute a decent chunk to TSP tocome close to your current salarybut how much? The government gives you an additional 5%plusearnings from the market assuming that you put in at least 5% to TSP. So between the FERS pension, government matching, and social security/FERS offset, the government contribution plus earnings should come in around 60-70% of your current income.Let's assume you put in 10% plus earnings. Now we're up to 70-80%. You will not need to contribute to TSP when you retireso the gap isabout 10-20%assuming only a 10% rate of savings.Not rich but not broke.
Very good post, Pete.

I've been battling this math in my head for months now. Just found this site, and am I a happy guy?!

Well, I'm in the position where I want to make sure I'm doing the right thing now, because I'm "lazy" when it comes to this stuff. I'm a "hold" guy on my allocations (G-10%, F-10%, C-33%, S-26%, I-21%), and I don't do any other sort of investing.

(Note: I've never been shy about discussing finances, as I firmly believe "How can someone give you advice, if they have no idea where you're coming from?")

Here's my situation:

28-years old, wife is 30. I'm a GS-11 Step 3 currently, should be eligble to retire as a GS-13 Step 10 when I'm 50 years old. (Will I retire at 50? Who knows, but it's a consideration. I'll probably look into something else at that point)

My pention will be approx. 45% of that GS-13 Step 10 beginning at 50-years old.

I am currentlycontributing 10% to TSP(Currently $26K).Have a Roth, but haven't contributed to it in 5 years.

Not yet started a family yet, but the wife has indicated my time is running out ;) She is an RN now, and does pretty well. But, once thelittle onescome, she would like to be a stay-at-home Mom. So her salary (or future salary) shouldn't be considered.

As far as the 70%-80% number, this is the first I've heard of it, and frankly sounds good to me.

My current plan is, to up my contribution to %14 in February (when I get my GS-12), and see if I can function on that. Is that going overboard?

But the Roth? Should I get that thing going again? What else should I be looking into? Ugggh.

Alright, I'm getting a headache now :)

TIA and GREAT THREAD!!!

Smitty

[azanon]

28-years old, wife is 30. I'm a GS-11 Step 3 currently, should be eligble to retire as a GS-13 Step 10 when I'm 50 years old. (Will I retire at 50? Who knows, but it's a consideration. I'll probably look into something else at that point)

The MRA in FERS is 55, not 50. Early outs are sometimes offered if you are at least 50, with 20 years of service, but they are not a common option available to you. They're not the best deal either. I think one's better off waiting until full MRA (55 for you).


My pention will be approx. 45% of that GS-13 Step 10 beginning at 50-years old.

At 55 yrs old, it would be approximately 30%, not 45%. As pete said, its roughly 1% per year of federal service, and since you started at 25, you'd have 30 years at 55, MRA. I think its actually a bit less than 1%/year of service, from what i recall of the examples they had at OPM.


Not yet started a family yet, but the wife has indicated my time is running out ;) She is an RN now, and does pretty well. But, once thelittle onescome, she would like to be a stay-at-home Mom. So her salary (or future salary) shouldn't be considered.

After a couple of years, she'll want to go back. Trust me.


My current plan is, to up my contribution to %14 in February (when I get my GS-12), and see if I can function on that. Is that going overboard?

No its not. I'd shoot for 15% (what i do). You get used to it. Since its tax deductible, it doesnt hurt the full 15% in reality.


But the Roth? Should I get that thing going again? What else should I be looking into? Ugggh.

I do Roths in addition to 15% of my TSP, butmy Roth contributions are totally based off my wife's income. My personal opinion is 15% of gross household income strictly saved for retirement is the sweet spot. I'm not sure how much this differed from my original opinion ~ 1.5 years ago (I think i was the thread starter).

[Smitty_]

azanon wrote:

28-years old, wife is 30. I'm a GS-11 Step 3 currently, should be eligble to retire as a GS-13 Step 10 when I'm 50 years old. (Will I retire at 50? Who knows, but it's a consideration. I'll probably look into something else at that point)

The MRA in FERS is 55, not 50. Early outs are sometimes offered if you are at least 50, with 20 years of service, but they are not a common option available to you. They're not the best deal either. I think one's better off waiting until full MRA (55 for you).


My pention will be approx. 45% of that GS-13 Step 10 beginning at 50-years old.

At 55 yrs old, it would be approximately 30%, not 45%. As pete said, its roughly 1% per year of federal service, and since you started at 25, you'd have 30 years at 55, MRA. I think its actually a bit less than 1%/year of service, from what i recall of the examples they had at OPM.



I believe our programs differ. My plan is specific to law enforcement.

I recieve 2% every year of service for the first 20 years, and 1% for every year after that up to age 57. You MUST retire by your 57th bday. (If I leave at 50, it would be 45% of my "high 3")

I am eligible to retire at age 50, and can begin"collecting" at age 50.

That being said, 15% still seems like a good target number. Agreed?

[Wimpy]

http://images.picsearch.com/is?757607400094

[azanon]

That being said, 15% still seems like a good target number. Agreed?

Well, if you're really looking at retiring at 50, which is pretty young, you might want to work towards 20% or more of gross. That would be a possibly 35-40 year retirement period, which is a really long time.

My MRA is 58, so i believe i would be just fine with 15% of gross, the match, pension, and 2 social securities. But the compounding i would get from 50 (the age you want to retire) to 58 would be tremendous.

I think 50s a bityoung to quit, but if you really dont like working, then try to cut those expenses even more, and max your Roths and TSP every year at a minimum.

[Dave M]

Here is the calculation I used in a recent staff presentation.

FERS basic benefit is an annuity worth 1% of your high-3 for each year of service. If you go for 25 years then you will have about 25%.

The max benefit from Social Security is about $1200 a month. In 25 years this ought to rise a little, so figure $1500 a month or $18,000 a year. Believe it or not, as a GS12 or 13 you will be making around $100,000 a year when you retire 25 years from now, so SS is about 18% of that.

Add these and you get 30+18 = 48% of your high-3. Assuming you need 80% then you are left with 32% to come up with out of your TSP. Assuming that you can withdraw 5% of your TSP balance each year without diminishing the "principle" then you arrive at the equation:

5%(TSP) = 32% high-3.

This means TSP should be about 6 times your high-3. Since we estimate high-3 at $100,000 this means $600,000 is what you should shoot for.

Picking an average salary of $75000 over the 25 years we can use the calculator to show that if real earnings are 5% then a contribution of 15%is needed.To get 5% real earnings you need 7-8% nominal earnings. That means at least some participation in the CSI funds, say 60G40CSI at a minimum, more like 40G60CSI.

I like to divide my current TSP balance by my current base salary. I do this each year and plot the ratio on a piece of graph paper as a time series. My balance goes up but I keep getting raises! I'm shooting for 6.0 but 4.0 will do.

Dave

[Birchtree]

DaveM,

The name of the game is the more you have in the more you can make. And after many years of accumulation and dollar cost averaging one will arrive. Then what? Most prudent, conservative approach is to pull back into the G fund - and that is a tragic error because now TSP offers the ability to concentrate and make lots of extra money per year with minimal risk. Diversification is still fine, but concentration is the game. When you can achieve 30,000 to 40,000 shares per a fund, then you are ready to rock and roll. The longer a participant is involved with the TSP board, the more comfortable one becomes with the minimal inherent risk - it's worth the price of admission. Make a dollar and you are up $40K.

Dennis

[Shaggy]

Most financial calculators I use show SOC at about $25,000 20 years from now. This is for a single person. Married shows $37,000. Of course who knows what will happen with SOC in the future. In addition a salary of $70,000 today with average increases of 3% a year which I believe is conservative, puts you at $126,000 a year, 20 years from now. You also need to consider if you are contributing 15% then upon retirement you no longer contribute. So in essence 85% of income is 100% of take home (not including tax benefits). So if you start at 85% and your gov annuity is 25% then you need 60% to make up the difference. SOC will be about 20% of$126,000. So 60-20= 40% that your TSP will need to contribute to get you to 100% of take home pay. Assuming 10% gains a year on TSP and 8% in retirementand a $0 beginning balance you would need to contribute 6% + the gov 5% match for a total of 11% to reach your goal. Of course this doesn't work because in the begining we assumed 15% employee contribution, but you get the idea.

I believe the idea is to plan as if the TSP is the only retirement. If in retirement you think you can live on 60% of income then you should save in TSP and/or IRA's to the extent that it will provide the 60%. this way if SOC fails or your gov annuity drops or you don't earn the expected 10% in TSP, then your not dead in the water. Of course if all those things happen were all in trouble.

[Wimpy]

How much should one save? Much more!!!

http://www.npr.org/search.php?text=Underfunded+Federal+Pensions

Click on the Underfunded Federal Pension link for the audio...

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[Wimpy]

Retiree benefits grow into 'monster'
Posted 5/24/2006 11:21 PM ET

By Dennis Cauchon, USA TODAY
Taxpayers owe more than a half-million dollars per household for financial promises made by government, mostly to cover the cost of retirement benefits for baby boomers, a USA TODAY analysis shows.

Federal, state and local governments have added nearly $10 trillion to taxpayer liabilities in the past two years, bringing the total of government's unfunded obligations to an unprecedented $57.8 trillion.

That is the equivalent of a $510,678 credit card debt for every American household. Payments on this delinquent tax bill must start soon if financial promises to the elderly are to be kept.

http://www.usatoday.com/news/washington/2006-05-24-retiree-taxpayers_x.htm (http://www.usatoday.com/news/washington/2006-05-24-retiree-taxpayers_x.htm)

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There are four ways to deal with this problem: 1) Reduce entitlements; 2) Raise taxes; 3) Print more money (hidden tax); 4) A combination of any of the above. What do you think is the most politically acceptable solution? My guess would be number (3) if the Republicans are in power and a combination of (2) and (3) if the Democrats are in power. So, when it comes time to vote it appears we have an equivalent choice of a broken arm or a broken leg.