Opening first Retirement account

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Opening first Retirement account

Postby 1x85zn » Fri Mar 22, 2013 11:45 am

Hello all, I'm ready to open my first IRA.

Stats:

Salary $90k
Age: 33
Debts:
CC Debt $0 (was over $10,000 2 years ago)
Student Loan Debt $22k

Assets:
401K $0 (company does not match)
IRA $0
Checking: $1600
Savings: $2500
Emergency: $3000
2yr CD: $2000

Goals:
Open a retirement fund.
Save for my first home (to stop renting in the most expensive city in the us!).

My job offers 401K but does not match. The fee's are

Quarterly Fees: $1.50
Loan fees: $12.50
Distribution Fees: $50

Which makes me lean towards opening a Roth IRA - but i'm not sure.
Bogleheads in the past have advised me to start of with VTTVX ($1000 min).

I'm ready to pull the trigger but am looking for any last minute advice or tips.

Thank you all. I'm glad to be out of CC debt and finally in a position where I can save towards retirement.
Last edited by 1x85zn on Thu Jan 23, 2014 4:03 pm, edited 1 time in total.
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Re: Opening first Retirement account

Postby NYBoglehead » Fri Mar 22, 2013 12:43 pm

Congrats on getting rid of the credit card debt. Depending on what your student loan interest rates are, it probably makes sense to try to knock those out of the way as well.

Just because your company does not match 401k contributions does not mean it is not a good plan. If they have low cost index funds the tax-deferral is well worth contributing. I would try to contribute to the 401k in addition to the Roth IRA.

A Vanguard Target Date Fund can be started with $1,000. I think one of those is a good place to start for you. In addition to that, I'd try to build your emergency fund to 6 months worth of expenses so you'll have some breathing room if something unfortunate happens.

I think you'll be pleasantly surprised how your portfolio will grow once you begin automatic contributions. Do a thorough analysis of your monthly budget and try to eliminate any unnecessary expenditures. The more you save the better chance you'll have of enjoying retirement.
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Re: Opening first Retirement account

Postby Taylor Larimore » Fri Mar 22, 2013 12:55 pm

1x85zn:

Congratulations for getting rid of that credit card debt!

Based on the information you provided, I agree that now is an excellent time to start investing in a Roth IRA. Your tax-free savings can be used for a house downpayment or towards retirement. You must open your account before April 15th for a 2012 Roth so do it now. VTTVX, a Target fund with about 75% stocks/25% bonds, sounds to me like a very good choice. This is a link to get started:

https://personal.vanguard.com/us/openac ... pe=NewAcct

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Opening first Retirement account

Postby DiscoBunny1979 » Fri Mar 22, 2013 1:12 pm

1x85zn wrote:to stop renting in the most expensive city in the us


This is the key statement. IF you are renting in the most expensive city in the US, then it might follow that home prices are the same? How much for the 'average' starter home? $600K?
If you're in a place that's expensive and average good home in a good neighborhood might cost that $600K, then 20% down would be $120K to avoid PMI or other issues. It's my opinion that your ROTH savings should stay in there for the future retirement and if you want to save for a house, then it really should be done elsewhere. The reason is you can only get $10,000 out of your ROTH For home purchase. But you'll need much more than that for a downpayment. If you keep that original $10,000 in the roth over the years, it should double almost every 10 years if the annualized yearly return is about 7%. That means in 30 years that $10,000 would grow from $10,000 to $20,000 to $40,000 to $80,000 for just sitting there. In my opinion, that's much better than using the $10,000 for a down on a house that requires an addiitional $110,000!. However, if you lived in an area whereas that $10,000 alone would eliminate PMI, then using the ROTH might get a thumbs up. But it's my impression that using the ROTH for a home downpayment is a marketing stunt by the Government to convince people that have never owned a house that the "American Dream" of home ownership is possible. The problem - the "American Dream" should NOT be about owning a depreciating asset like a house or a car - it should be about self-reliance, self-confidence and good health (oh and, practicing family traditions). Just my opinion.
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Correction

Postby Taylor Larimore » Fri Mar 22, 2013 3:46 pm

You can only get $10,000 out of your ROTH For home purchase.

Sorry, the above statement is incorrect. You can withdraw ALL your Roth contributions at any time for any purpose without tax or penalty. After 5 years from January of the year you first invest in a Roth, the $10,000 home purchase rule (and other exceptions) apply to earnings.

Check IRS for confirmation and details.

Best wishes.
Taylor
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Re: Opening first Retirement account

Postby 1x85zn » Sat Mar 23, 2013 11:03 am

Thanks everyone!

Allow me to clarify the following points:

1- The CC debt was to finish college's final semester (after a few years off). At the time it was a investment in my future. Unfortunately out of college I made 30k which made paying it down very difficult (22% apr! ouch).
2-My retirement goals are separate than my house goal. I just happen to be starting both at the same time.
3-I live in NYC - small homes in bad areas of the South Bronx or Bed Stuy Brooklyn are 300k. Not what I have in mind. I come from those neighborhoods and really don't want to go back. Unfortunately small homes in "nicer" areas are ~1Mil. So that leaves me with no choice but to move to another state or suburb if I want to make it happen. For now..I just need to research and keep saving.
4-I will consider both Roth and 401k.
5-Expenses have already been cut and frugal living is a priority. Mint.com really helped me out with budgets/trends analysis of my spending.
6-Since I have excellent credit (766 fico) I picked up a American Express Blue Preferred card. Now I can earn 6% back on groceries, 3% on big box stores, and 1% for everything else. I've been using my "no rewards" Mastercard for purchases (paying it off immediately).
7-My rent goes up $75-85 per year, which means that in 3 years I will be paying $1675/mo on rent for a tiny 1 BR. Terrible.
9- would pay more down towards my student loans, but right now the focus is to save for my home.
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Re: Opening first Retirement account

Postby 1x85zn » Sun Mar 24, 2013 12:46 pm

I'm opening the Vanguard Roth IRA account and contributed 1k to 2012
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Re: Opening first Retirement account

Postby Taylor Larimore » Sun Mar 24, 2013 5:10 pm

1x85zn wrote:I'm opening the Vanguard Roth IRA account and contributed 1k to 2012


Congratulations!

Best wishes.
Taylor
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Re: Opening first Retirement account

Postby 1x85zn » Sun Mar 24, 2013 5:23 pm

I appreciate your help guys
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Re: Opening first Retirement account

Postby 1x85zn » Fri Jul 12, 2013 2:42 pm

Hello Bogleheads,

I just wanted to provide an update:

Salary $100k

Debts:
CC Debt $0 (was over $10,000 2 years ago)
Student Loan Debt $22k

Assets:
401K $0 (company does not match)
ROTH / Vanguard Target Fund 2025: $1600
Checking: $1600
Savings: $9500
Emergency: $4000
2yr CD: $2000

Since i'm aggressively saving for my first home, I have only deposited $400 /mo to my Target Fund.

I did have a question, perhaps someone could answer me. Based on my scenario it was recommended to go with 2025. Considering my age, there is no way i'm going to retire in 12 years. Before I start putting more money into this account, does it still seem like a good choice? If not, is it possible to adjust the ratios manually?
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Best Target Fund?

Postby Taylor Larimore » Sat Jul 13, 2013 5:19 pm

I did have a question, perhaps someone could answer me. Based on my scenario it was recommended to go with 2025. Considering my age, there is no way i'm going to retire in 12 years. Before I start putting more money into this account, does it still seem like a good choice? If not, is it possible to adjust the ratios manually?


Knowledgeable investors, select their Target Fund based on the its stock/bond ratio. Not on the Target Date.

Vanguard's Target 2025 fund has a stock/bond ratio of 75/25. This means that in the next bad stock bear market your Roth Portfolio should be expected to decline at least 33% (1/2 the stock percentage).

If this does not sound reasonable use this Vanguard's Asset Allocation Tool for help:

https://personal.vanguard.com/us/funds/ ... mmendation

You can "adjust" to another target fund in an IRA at any time without cost. This can be done on-line, by writing, or on the telephone.

Best wishes
Taylor
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