47 and clueless - direction needed

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chattyanne
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47 and clueless - direction needed

Post by chattyanne » Wed Jun 13, 2018 8:46 pm

I am new here, have read much and still feel dizzy. I feel like all of the investment folks who have guided me (sold me shares of this and that) have won and I am seriously worried about my future.

I am 47, single, no children, no debt, home paid off.
Income approx. $33,000

In 2011 I was laid off so I rolled over my 401k into an IRA with Franklin Templeton who used the money ($22,654.81) to open two accounts.

FKINX (class A front load) - $22,154.81
FBLAX (class A back load) - $500.00

I was told only to invest in the FKINX fund because it's dividends are being reinvested into the FBLAX. So the FBLAX receives it's own dividends, captl gains and the dividends from the FKINX. Last July I started adding to the FKINX so today the value is...
FKINX - $29,351.98 (deposit into this one)
FBLAX - $11,729.13 (this grows from dividends & captl gains)

I've never heard of anyone else having funds set-up like this. Is this good/bad? I just know at this rate my thoughts of retirement are slim. Any advice?

My workplace offers and 401k w/ no match. It offers vanguard funds but through a secondary company which adds to the fees. I'm not sure if I explained myself very well so I apologize in advance.

FIREmeup
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Re: 47 and clueless - direction needed

Post by FIREmeup » Wed Jun 13, 2018 10:23 pm

Oh wow.

So who told you to put money into one and direct the dividends into the other? Was it a sales person for the company? I really hope I am not understanding this correctly.

Basically they have you invest in front load fund to get their commission and reinvest into another fund where whenever you take it out....they will get commission again on the back load? Stop this madness right now. Open a Vanguard account please and buy VTSAX or VTI. Or a Schwab account and buy SWTSX or SCHB. I cannot believe the scum out there that takes advantage of people. They seriously must have no soul.

billfromct
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Re: 47 and clueless - direction needed

Post by billfromct » Wed Jun 13, 2018 11:01 pm

With income of $33k ($21k taxable income after subtracting the $12k standard deduction), you are in the 12% Federal tax bracket.

After you roll over (trustee to trustee transfer) your Franklin Templeton tax deductible IRA into a Vanguard rollover IRA (pre-tax), you may want to open a Roth IRA (after tax contributions, but distributions come out state & Federal tax free after age 59.5) with Vanguard.

Since you are in a low tax bracket (12% Federal), this will build some tax diversification in your retirement accounts. You can contribute $5.5k/year into a Roth IRA if you are under 50 years old & $6.5k/year when you are 50 & older.

You can open a Target Retirement Fund (Roth account) with a $1,000 contribution.

Based on your age, a Target Retirement 2040 fund would be appropriate. The Target Retirement 2040 Fund is now 85% stocks (domestic & international) and 15% bonds (domestic & international). The fund will migrate to 50%/50% stock/bond allocation in 2040, then 30%/70% in 2047.

The expense ratio of the Vanguard Target Retirement funds are .15%. FKINX (income fund) expense ratio is .62%; FBLAX (balanced fund) expense ratio is 1.01%.

bill

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alpine_boglehead
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Re: 47 and clueless - direction needed

Post by alpine_boglehead » Wed Jun 13, 2018 11:11 pm

Welcome to the forum, chattyanne

As pointed out by FIREmeup, these funds are quite suboptimal, to say it nicely.
Find out how you can transfer your funds into a Vanguard/Schwab/Fidelity account and use their low-cost index funds.

Morningstar shows FKINX and FBLAX to have expense ratios and front loads of 0.62%/5.75% and 1.01%/4.25% respectively.

Meaning e.g. for FBLAX for every $1000 you invest, you immediately hand over $57.5 to the investment advisor. Gone forever. And each and every year you can expect to lose $6 over near-zero fee Vanguard (or Schwab) index funds. The yearly fee doesn't sound that much, but that really sum up over the years, and can easily cost you 50% of the potential end value of your investments.

As you've found out the hard way, the investment salespeople don't "guide" you, the sell you stuff on which they make money.

About your general retirement outlook - start saving for retirement, maxing out your tax-advantaged options, take advantage of company matches if available etc.

Here's the Bogleheads getting started page https://www.bogleheads.org/wiki/Getting_started. Educating yourself will pay off big time.

danielc
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Re: 47 and clueless - direction needed

Post by danielc » Thu Jun 14, 2018 12:01 am

chattyanne wrote:
Wed Jun 13, 2018 8:46 pm
I am new here, have read much and still feel dizzy. I feel like all of the investment folks who have guided me (sold me shares of this and that) have won and I am seriously worried about my future.

I am 47, single, no children, no debt, home paid off.
Income approx. $33,000
The good news is that you have no debt and your home is paid off. Yes, the Franlkin Templeton person gave you bad advice and I think he took advantage of you. But this is fixable and then you'll be fine.

FKINX charges a 0.63% expense ratio and FBLAX charges 1.03%. This is very high compared to competitors. You should be expecting a no-load index fund with an ER closer to 0.15%. For example, Vanguard's Target Retirement 2040 and Fidelity's Index 2040 are both reasonable options for your age and they are both no-load funds with an ER of 0.15%. So the easiest thing to do is just cancel FKINX and FBLAX and move your money to either the Vanguard of the Fidelity fund.

Other people here can give you better advice than I can. I just wanted to convey that you don't have to feel miserable and there are good alternatives for you.

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FiveK
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Re: 47 and clueless - direction needed

Post by FiveK » Thu Jun 14, 2018 12:15 am

Pretty much agree with previous posters advice.

One slight difference: if you put $2000/yr into a traditional IRA or 401k, that (assuming $33K gross income) would give you a $200 saver's credit and 22% savings.

Beyond that $2000, if you can handle the cash flow, a Roth IRA or Roth 401k may make sense due to saving only 12%.

Any of the brokerages named (Fidelity, Schwab, Vanguard) will handle moving the money from Franklin Templeton - you'll just need to sign a form authorizing that. Call Fidelity, Schwab, or Vanguard and they will be happy to help.

Doctor Rhythm
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Re: 47 and clueless - direction needed

Post by Doctor Rhythm » Thu Jun 14, 2018 12:42 am

Welcome to the Forum.

Apologies, but I'll just come out and say it: You have been duped, and you need to cut your losses immediately. Nothing about this portfolio is designed to help you. Everything about it benefits Franklin Templeton and any advisor who got a commission for steering you that way.

They have you putting all of your principal in an income fund (FKINX) that has about 40% allocated to stocks. While that allocation isn't necessarily bad, it is unusually conservative for most people your age. More puzzling, though, is that they have you investing all your income from FKINX into a "balanced" fund (FBLAX) which has a 55% allocation to stocks. Thus, as you get older, you will gradually increase your exposure to stocks. This strategy is the opposite of conventional wisdom and opposite of what almost anyone would advise.

On top of that, the two funds are not very different (40% vs 55% stock allocation would both be considered conservative-to-moderate). Their performance over the last 3 and 5 years only differ by about 1%. So why bother moving money from one fund to the other? It's like trying to cut carbs by eating less bread and more pasta.

Finally, the funds have high expense ratios, which is the percentage of your investment that gets eaten up every year, rain-or-shine, to help Franklin Templeton make a profit. Similar funds using index investing should have expense ratios that are 80-90% lower. On top of that, you state that you are paying a sales load. This will severely reduce any gains and magnify any losses. Moving income from the front loaded fund into the back loaded fund makes this twice as bad, because (as others have said) you're getting soaked both going in and coming out, instead of just once.

You should open an IRA elsewhere (Vanguard is popular here, but Schwab and FIdelity are also good options based on personal experience) and do a direct rollover from Franklin Templeton to the new account. You will take a hit from the back-end load on FBLAX, but the longer you wait, the bigger the hit will be. This forum has lots of good advice on which funds to pick. I'm inclined to recommend one of Vanguard's target date funds. It may not be the ideal choice, but it's good enough for now, requires minimal effort, and avoids paralysis from having to pick from too many options. You can fine tune and optimize later when you're safely out of your current bad relationship.

pkcrafter
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Re: 47 and clueless - direction needed

Post by pkcrafter » Thu Jun 14, 2018 12:52 am

chattyanne wrote:
Wed Jun 13, 2018 8:46 pm
I am new here, have read much and still feel dizzy. I feel like all of the investment folks who have guided me (sold me shares of this and that) have won and I am seriously worried about my future.

Welcome Anne

I am 47, single, no children, no debt, home paid off.
Income approx. $33,000

In 2011 I was laid off so I rolled over my 401k into an IRA with Franklin Templeton who used the money ($22,654.81) to open two accounts.

FKINX (class A front load) - $22,154.81
FBLAX (class A back load) - $500.00<--This fund is not back end loaded, it is also front loaded @ 5.75%. Furthermore, both funds are large value balanced funds with lower quality bond components. The advisor's strategy doesn't make any sense. I'm not 100% sure, but I think that every time you added dividends to the second fund, 5.75% was deducted for commission. If this is true, then that advisor should be reported to FINRA and SEC.

I was told only to invest in the FKINX fund because it's dividends are being reinvested into the FBLAX. So the FBLAX receives it's own dividends, captl gains and the dividends from the FKINX. Last July I started adding to the FKINX so today the value is...
FKINX - $29,351.98 (deposit into this one)
FBLAX - $11,729.13 (this grows from dividends & captl gains)

Do these two funds represent all of your retirement investments? How much do you think you can put toward retirement annually? Are you risk averse?

I've never heard of anyone else having funds set-up like this. Is this good/bad? BAD.

I just know at this rate my thoughts of retirement are slim. Any advice?

Yes, advice and optimism about your future once you get things under control, but don't make any moves until you understand everything and you have a long term plan.

How much are your monthly expenses?


First, you have to get away from this advisor. You do this by contacting the new custodian you want to go with (Fidelity, Schwab, Vanguard recommended). You call the company you want to go with and tell them you want a custodian to custodian transfer and they will take care of it. No need to talk with your advisor or F-T.

My workplace offers and 401k w/ no match. It offers vanguard funds but through a secondary company which adds to the fees. I'm not sure if I explained myself very well so I apologize in advance.


Don't worry, take your time and be sure you understand all the advice you'll get before changing anything.

Paul

When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Doctor Rhythm
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Re: 47 and clueless - direction needed

Post by Doctor Rhythm » Thu Jun 14, 2018 1:04 am

This fund is not back end loaded, it is also front loaded @ 5.75%.
That's a crazy high load. In any case, it means she's already taken the hit, so she has no disincentive to get out - certainly before the next dividend/interest payout date for FKINX.

fujiters
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Re: 47 and clueless - direction needed

Post by fujiters » Thu Jun 14, 2018 3:53 am

Doctor Rhythm wrote:
Thu Jun 14, 2018 12:42 am
You should open an IRA elsewhere (Vanguard is popular here, but Schwab and FIdelity are also good options based on personal experience) and do a direct rollover from Franklin Templeton to the new account. You will take a hit from the back-end load on FBLAX, but the longer you wait, the bigger the hit will be. This forum has lots of good advice on which funds to pick. I'm inclined to recommend one of Vanguard's target date funds. It may not be the ideal choice, but it's good enough for now, requires minimal effort, and avoids paralysis from having to pick from too many options. You can fine tune and optimize later when you're safely out of your current bad relationship.
+1.

Open an IRA at Vanguard/Fidelity/Schwab and instruct them to do the rollover. Don't engage Franklin Templeton directly. I also think a target date fund would be a great option.

For future IRA contributions, if you contribute to a traditional IRA (which is deductible at your income), this will lower your AGI, which will also qualify you for the Saver's Credit.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

CrazyCatLady
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Re: 47 and clueless - direction needed

Post by CrazyCatLady » Thu Jun 14, 2018 6:36 am

chattyanne wrote:
Wed Jun 13, 2018 8:46 pm
I am new here, have read much and still feel dizzy. I feel like all of the investment folks who have guided me (sold me shares of this and that) have won and I am seriously worried about my future.

I am 47, single, no children, no debt, home paid off.
Income approx. $33,000

In 2011 I was laid off so I rolled over my 401k into an IRA with Franklin Templeton who used the money ($22,654.81) to open two accounts.

FKINX (class A front load) - $22,154.81
FBLAX (class A back load) - $500.00

I was told only to invest in the FKINX fund because it's dividends are being reinvested into the FBLAX. So the FBLAX receives it's own dividends, captl gains and the dividends from the FKINX. Last July I started adding to the FKINX so today the value is...
FKINX - $29,351.98 (deposit into this one)
FBLAX - $11,729.13 (this grows from dividends & captl gains)

I've never heard of anyone else having funds set-up like this. Is this good/bad? I just know at this rate my thoughts of retirement are slim. Any advice?

My workplace offers and 401k w/ no match. It offers vanguard funds but through a secondary company which adds to the fees. I'm not sure if I explained myself very well so I apologize in advance.
Welcome to the forum! :). I was in the same situation as you a couple months ago (47 and realized my "advisor" had put me in horrible funds that only benefited him). I did an in-kind transfer to Vanguard based on the advice I received here and then Vanguard helped me sell the bad funds and buy Vanguard funds. It was a pretty simple process and I'm glad I did it. I would do the transfer to Vanguard (or Fidelity or Schwab) and put the money in a target fund while you figure out your preferred allocation. Come here and ask questions (everyone is great about answering), create an investment policy statement and asset allocation and then invest as much as you can. Good luck! :)

CnC
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Re: 47 and clueless - direction needed

Post by CnC » Thu Jun 14, 2018 7:34 am

Wow they are screwing you over on the front end and the back end. I do not exaggerate here. That is beyond simple negligence that is simply exploiting of the I'll informed.


I would get out as soon as possible.

SimplicityNow
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Re: 47 and clueless - direction needed

Post by SimplicityNow » Thu Jun 14, 2018 7:37 am

As already has been said, the "advisor" and I mean that sarcastically hasn't given you good advice.

The very good news is that you realized it and are prepared to do something about it. That is great. Also great is that you have no debt! Well done.

You might want to consider moving your investments to Vanguard. There are no loads, very low expense ratios and great choices.

The good people on this forum can make suggestions as to which funds in Vanguard you can invest based on your need, willingness and ability to take risk based on your age, years till retirement and many other factors.

Don't feel it is too late. Many people (including people on this forum) didn't discover what you did until much later in their investing careers.

This can all be fixed.

Best of luck.

FOGU
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Re: 47 and clueless - direction needed

Post by FOGU » Thu Jun 14, 2018 7:54 am

Take the advice of these posters. Get rid of Franklin Templeton. You got ripped off and led astray. Cut your losses now. Based on my experience I recommend Vanguard, but others have just as good a recommendation for Fidelity and Schwab.

Don't feel bad. Merrill Lynch took me for a ride for a while until I grabbed hold and took control, wised up and dropped them like a bad habit. Keep asking questions and you will find your way. This stuff is not as complicated as it is made to seem.
~ Don't just do something. Sit there. ~

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Oak&Elm
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Re: 47 and clueless - direction needed

Post by Oak&Elm » Thu Jun 14, 2018 8:42 am

Anne,
You're not the first person to get ran over by an adviser and you certainly won't be the last. Years ago I realized a very similar situation that took place between my parents and the friendly local EJ adviser. I'm guessing you don't want to sit down with your "adviser" and discuss whether or not they acted in your best interest but maybe you would like to print out this entire thread and send it to him/her. Probably wouldn't change things but just maybe this adviser would see what they are doing to people's retirement hopes, dream's, security and start investing your money as if were their own. I don't begrudge any adviser for charging people invest, many folks want nothing to do with it and prefer to pay someone else to do it, just please do it ethically.

rantk81
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Re: 47 and clueless - direction needed

Post by rantk81 » Thu Jun 14, 2018 8:45 am

I get angry when I see posts like the one from the OP.
What this financial firm did to you is borderline criminal, in my opinion.

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dccboone
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Re: 47 and clueless - direction needed

Post by dccboone » Thu Jun 14, 2018 9:18 am

Welcome to the forum. It's time to take control of your retirement savings and Bogleheads is a great place to start. Learn from the good people here. They know of what they speak. Second, I might consider some expression of the popular saying "revenge is a dish best served cold." Perhaps a trip to a local farm where you could get some cow manure which could then be gift wrapped for your advisor with a nice note explaining this is what you believe their advice best represents. I jest because it would not likely change their behavior, but they would certainly not forget the gesture. :sharebeer

Tamalak
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Re: 47 and clueless - direction needed

Post by Tamalak » Thu Jun 14, 2018 9:38 am

It is unbelievable that this crap is legal.

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dratkinson
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Re: 47 and clueless - direction needed

Post by dratkinson » Thu Jun 14, 2018 10:34 am

Sorry about your F-T problems, but it is a simple matter to get onto a better path.

Decide where you want to move your IRA (Vanguard, Fidelity,...). Call them and they can walk you through the process of setting up your new account. Then they will do the work to move your old IRA from F-T, so you don't need to mess with F-T or your old financial advisor (salesman).

Ask your new investment home to move your IRA over "in kind" to avoid any selling fee with F-T. F-T may charge you a fee to close your account with them; this is the price of your freedom from them.

Once your IRA is at your new investment home, then you can exchange it into your preferred fund. (Ask your new investment home the cost of this exchange. Ideally you want this to be a free exchange. Sorry, I'm not familiar with brokerage fees.)



How much can you afford to save for retirement each year?

I ask because it might be better to fully fund your IRA (lowest cost), before contributing the remainder to your 401k? Why? If your 401k options are more expensive (due to additional layer of management fees) then you'd save some of those fees by putting less in your 401k and more in your IRA.

An age-appropriate TDR (target date retirement) fund would be the simplest to live with (in both your IRA and 401k) as it will manage itself (do the rebalancing) for you.



Do you have an emergency fund? How many months of living expenses does it contain?



What state do you live in? Do you know your state tax bracket? (If not, don't worry, we can look it up.)



What is the amount of your annual living expenses? Do you expect this amount to be relatively unchanged during retirement? Or do you foresee yourself spending more to travel, entertain,...?



Congratulations on having your home paid off.



Welcome.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

indexonlyplease
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Re: 47 and clueless - direction needed

Post by indexonlyplease » Thu Jun 14, 2018 11:32 am

billfromct wrote:
Wed Jun 13, 2018 11:01 pm
With income of $33k ($21k taxable income after subtracting the $12k standard deduction), you are in the 12% Federal tax bracket.

After you roll over (trustee to trustee transfer) your Franklin Templeton tax deductible IRA into a Vanguard rollover IRA (pre-tax), you may want to open a Roth IRA (after tax contributions, but distributions come out state & Federal tax free after age 59.5) with Vanguard.

Since you are in a low tax bracket (12% Federal), this will build some tax diversification in your retirement accounts. You can contribute $5.5k/year into a Roth IRA if you are under 50 years old & $6.5k/year when you are 50 & older.

You can open a Target Retirement Fund (Roth account) with a $1,000 contribution.

Based on your age, a Target Retirement 2040 fund would be appropriate. The Target Retirement 2040 Fund is now 85% stocks (domestic & international) and 15% bonds (domestic & international). The fund will migrate to 50%/50% stock/bond allocation in 2040, then 30%/70% in 2047.

The expense ratio of the Vanguard Target Retirement funds are .15%. FKINX (income fund) expense ratio is .62%; FBLAX (balanced fund) expense ratio is 1.01%.

bill
+1 on this advice. Your house is paid off so that is a big plus. Now see how much you can afford to invest each month. You have many years ahead to work and invest. Set up portfolio so it is easy for you to invest and never change it. The Vanguard Target Dated Funds are great.

f35phixer
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Re: 47 and clueless - direction needed

Post by f35phixer » Thu Jun 14, 2018 1:00 pm

So sorry for this happening to you!!! But as others have said, you can recover and have 15 years to recover before you decide if you want SS at 62... Your accounts can grow grow grow...

There are some very smart finance people on here who i'm sure could write a SHORT SWEET NOTE to FT, you guys ripped me off and you can kiss my BUTT!!! See Ya... Mine would be filled with profanity !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

chattyanne
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Re: 47 and clueless - direction needed

Post by chattyanne » Thu Jun 14, 2018 6:54 pm

FIREmeup wrote:
Wed Jun 13, 2018 10:23 pm
Oh wow.

So who told you to put money into one and direct the dividends into the other? Was it a sales person for the company? I really hope I am not understanding this correctly.

Basically they have you invest in front load fund to get their commission and reinvest into another fund where whenever you take it out....they will get commission again on the back load? Stop this madness right now. Open a Vanguard account please and buy VTSAX or VTI. Or a Schwab account and buy SWTSX or SCHB. I cannot believe the scum out there that takes advantage of people. They seriously must have no soul.
This is a local finance advisor who works for Lasalle St Securities LLC and transferred my 401k (which got hit hard in 2008) into these Franklin Templeton funds. There were several of us who got laid off during that time and I believe he set us all up this way. After some time I tried to question him about this but he quickly pointed to the shiny gold star (Balanced fund FBLAX) which was receiving all of the dividends. My gut kept telling me something was wrong but I couldn't wrap my mind around it so I sat down and built a spreadsheet tracking every movement. (funny, you all didn't need to do this step:)...but it helped me see something was wrong. I noticed that if I didn't invest into the Income fund (FKINX) it would start losing money due to the maintenance fees and the price per share didn't fluctuate much. You are correct, FKINX is front load, FBLAX is back although it's advertised as front but I haven't seen any fees whatsoever on this unless I'm overlooking something....which is possible.

chattyanne
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Re: 47 and clueless - direction needed

Post by chattyanne » Thu Jun 14, 2018 7:10 pm

dratkinson wrote:
Thu Jun 14, 2018 10:34 am
Sorry about your F-T problems, but it is a simple matter to get onto a better path.

How much can you afford to save for retirement each year? $6000 for this year but really needing to shift some gears.

I ask because it might be better to fully fund your IRA (lowest cost), before contributing the remainder to your 401k? Why? If your 401k options are more expensive (due to additional layer of management fees) then you'd save some of those fees by putting less in your 401k and more in your IRA. I don't have a 401k but it is an option through work which goes through Transamerica.

Do you have an emergency fund? How many months of living expenses does it contain? $10,016.22 emergency fund with Capital One (old ING)

I have a local savings to cover insurances, property taxes, vehicle registration and rare moments like getting a much needed lawn mower which I had to do this year.

What state do you live in? Do you know your state tax bracket? (If not, don't worry, we can look it up.) Indiana



What is the amount of your annual living expenses? Do you expect this amount to be relatively unchanged during retirement? Or do you foresee yourself spending more to travel, entertain,...? Annual living expenses $1200.00 mnth (14,400 yr) which is being generous. Fortunately I ride a bicycle for entertainment. I can hunker down more. My hopes is this is unchanged. ??



Congratulations on having your home paid off. Thanks! While my investments were getting screwed I was getting debt free. Now to shift my focus:)



Welcome.
Last edited by chattyanne on Thu Jun 14, 2018 8:27 pm, edited 1 time in total.

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FiveK
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Re: 47 and clueless - direction needed

Post by FiveK » Thu Jun 14, 2018 7:33 pm

chattyanne wrote:
Thu Jun 14, 2018 6:54 pm
FBLAX is back although it's advertised as front but I haven't seen any fees whatsoever on this unless I'm overlooking something....which is possible.
It's possible that the load is being waived because you already have another fund with them. Class A shares (that's the "A" in Franklin Balanced A) aren't back end loaded. See Understanding Mutual Fund Classes | FINRA.org.
chattyanne wrote:
Thu Jun 14, 2018 7:10 pm
Annual living expenses $1200.00
I'm guessing at least one word or number there is not correct. :?

chattyanne
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Re: 47 and clueless - direction needed

Post by chattyanne » Thu Jun 14, 2018 7:45 pm

First I want to thank you all for taking the time to read about my situation and respond with your brutal / honest feedback, guidance and encouragement. I mean that...thank you :-? My gut has told me something was wrong for a while but I couldn't wrap my mind around it so I'm glad I finally got the courage to share and ask before I really started feeding into my funds. Hard lessons learned to say the least.

I've spent the day checking up on your responses, feeling a bit disheartened and frustrated and researching the funds that has been recommended. As soon I got home from work I called Vanguard and opened an IRA account and started the in-kind transfer process. I have some sheets which I've filled out and will mail it tomorrow to Vanguard. I am being told this may take a couple of weeks which will end up being before anymore dividends get moved around with Franklin Templeton. FYI even the Vanguard guy questioned my accounts and wanted some history on why it was set-up the way it was.

So from here forward I need to make good decisions. Some recommendations were VTSAX, VTI and Target Retirement 2040.
The VTSAX and VTI almost seem to be the same to me and possibly a greater risk. Am I understanding correctly.
The 2040 is a bit more blended but a higher % of stocks. My question is how often does the allocation change for these target dates?

Some folks also mentioned possibly opening a Roth. I do have a Betterment account worth approx. $1000 would it be beneficial to turn that into a Roth? Right now it's a taxed growth fund of 80 stocks 20 bonds.

I'm not sure if I answered everyone's questions. I'm going to continue studying and preparing my future blueprint. Thank you all once again.

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FiveK
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Re: 47 and clueless - direction needed

Post by FiveK » Thu Jun 14, 2018 8:32 pm

chattyanne wrote:
Thu Jun 14, 2018 7:10 pm
Annual living expenses $1200.00 mnth (14,400 yr) which is being generous.
Wow!

That would impress even the folks at The Money Mustache Community. You might do a Case Study there and teach them a thing or two. ;)
chattyanne wrote:
Thu Jun 14, 2018 7:45 pm
Some recommendations were VTSAX, VTI and Target Retirement 2040.
The VTSAX and VTI almost seem to be the same to me and possibly a greater risk. Am I understanding correctly.
Yes, because VTSAX/VTI are 100% stocks and TR 2040 has some bonds and thus a lower percentage stocks.
The 2040 is a bit more blended but a higher % of stocks.
Don't understand this one. Higher % than...?
My question is how often does the allocation change for these target dates?
See pages 5 and 6 of http://www.vanguard.com/pdf/s167.pdf for some pictures.
Some folks also mentioned possibly opening a Roth.
If you put $2000/yr into a traditional IRA or 401k, that (assuming $33K gross income) would give you a $200 saver's credit and 22% savings.

Beyond that $2000 a Roth IRA or Roth 401k may make sense due to saving only 12%. But if you expect to need only ~$15K/yr in retirement, traditional may be better for you even at 12% now. May need a sharper pencil for this one, but it won't likely make a huge difference either way so pick a direction for this year and do it. You can always change from year to year (and even within a year for new contributions).

Leemiller
Posts: 1005
Joined: Sat Jun 01, 2013 12:42 pm

Re: 47 and clueless - direction needed

Post by Leemiller » Thu Jun 14, 2018 8:36 pm

You are in a low tax bracket and you don’t get a 401k match so I’d open a Roth and focus on fully funding it each year. That’s 5,500 a year. You can also use it as an emergency fund if needed.

Have you checked your expected social security benefit? You don’t have a ton saved, but your living expenses are quite low. Congrats on the paid for house.

Once you have your social security benefits, you can figure how much you need to save to meet any gap in expenses vs social security. Generally, I’d assume a 4% rate of return. So 100k invested would give you 4K a year.

I think you’re probably in better shape than you think. One thing to consider is trying to bring in more income or changing jobs for a raise. A few thousand more a year could really accelerate your pace.

3of3
Posts: 3
Joined: Fri May 11, 2018 9:21 pm

Re: 47 and clueless - direction needed

Post by 3of3 » Thu Jun 14, 2018 9:17 pm

on vanguard's website, they have an investing section with overviews on their offerings. the all-in-one (aka target date funds) section give you some guidance on which fund to select. when you select a fund, further down the page you will find a graphic with a slider bar and it will show you how the asset allocation changes as you move closer to the retirement date.

hope that helps!

Doctor Rhythm
Posts: 81
Joined: Mon Jan 22, 2018 3:55 am

Re: 47 and clueless - direction needed

Post by Doctor Rhythm » Thu Jun 14, 2018 9:59 pm

Congrats and great job on taking action today - rather than waiting. When making financial plans, usually it's best to mull things over and do a lot of additional research, but your case is an exception.

Since you've decided to go with Vanguard, I will again make a plug for their Target Date fund, mainly because you are new to this, and these funds get the job done with minimum fuss or effort on your part. You can always get fancier when you gain experience and confidence. With regards to your question about how often the allocation changes in target funds, the managers don't reveal the details, but this page on their website gives you a general sense: https://investor.vanguard.com/mutual-fu ... rview/0696. Scroll to the colorful chart at the bottom. Quick summary:

2040 fund = 85% stock
2035 fund = 78% stock
2030 fund = 70% stock
.
.
.
2015 fund = 42% stock, which you may recall is what FKINX allocates to stock. That's why I said earlier that it's an unusually conservative choice. Your money was invested in a fund that's more appropriate for retirees with an adequate nest egg than for people trying to save up so that they can retire.

chattyanne
Posts: 16
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Fri Jun 15, 2018 8:43 pm

FiveK wrote:
Thu Jun 14, 2018 8:32 pm
chattyanne wrote:
Thu Jun 14, 2018 7:10 pm
Annual living expenses $1200.00 mnth (14,400 yr) which is being generous.
Wow!
I just took time to double check my numbers and it's gone up to $1,219.57 due to increase of cable (very basic mainly for internet) and insurance.

That would impress even the folks at The Money Mustache Community. You might do a Case Study there and teach them a thing or two. ;)
Mr. Money Mustache has kept me entertain for some time. I wouldn't mind sharing but not to teach, more to continue learning. Sometimes we can't see our own situation as clearly as others can. It would be fun for sure. To have the numbers on paper and to live it are two different things. :wink:

It's been years to get to this point, believe me. The best part is I can look around me and really not need a thing.
chattyanne wrote:
Thu Jun 14, 2018 7:45 pm
Some recommendations were VTSAX, VTI and Target Retirement 2040.
The VTSAX and VTI almost seem to be the same to me and possibly a greater risk. Am I understanding correctly.
Yes, because VTSAX/VTI are 100% stocks and TR 2040 has some bonds and thus a lower percentage stocks.

Thanks, you verified what I was seeing.
The 2040 is a bit more blended but a higher % of stocks.
Don't understand this one. Higher % than...?
I don't know what I was asking :shock:
My question is how often does the allocation change for these target dates?
See pages 5 and 6 of http://www.vanguard.com/pdf/s167.pdf for some pictures. This helped thanks!
Some folks also mentioned possibly opening a Roth.
If you put $2000/yr into a traditional IRA or 401k, that (assuming $33K gross income) would give you a $200 saver's credit and 22% savings. This is something I've never heard of and probably received without knowing. ? I have plenty of notes and homework in my future. :happy

Beyond that $2000 a Roth IRA or Roth 401k may make sense due to saving only 12%. But if you expect to need only ~$15K/yr in retirement, traditional may be better for you even at 12% now. May need a sharper pencil for this one, but it won't likely make a huge difference either way so pick a direction for this year and do it. You can always change from year to year (and even within a year for new contributions).
Things are slowly making sense. Thank you for your time.

chattyanne
Posts: 16
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Fri Jun 15, 2018 8:45 pm

Doctor Rhythm wrote:
Thu Jun 14, 2018 9:59 pm
Congrats and great job on taking action today - rather than waiting. When making financial plans, usually it's best to mull things over and do a lot of additional research, but your case is an exception.

I've been mulling for some time. I think I just needed a team of people to kick me in the rear!!

Since you've decided to go with Vanguard, I will again make a plug for their Target Date fund, mainly because you are new to this, and these funds get the job done with minimum fuss or effort on your part. You can always get fancier when you gain experience and confidence. With regards to your question about how often the allocation changes in target funds, the managers don't reveal the details, but this page on their website gives you a general sense: https://investor.vanguard.com/mutual-fu ... rview/0696. Scroll to the colorful chart at the bottom. Quick summary:

2040 fund = 85% stock
2035 fund = 78% stock
2030 fund = 70% stock
.
.
.
2015 fund = 42% stock, which you may recall is what FKINX allocates to stock. That's why I said earlier that it's an unusually conservative choice. Your money was invested in a fund that's more appropriate for retirees with an adequate nest egg than for people trying to save up so that they can retire.
Thanks for the direction and information.

chattyanne
Posts: 16
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Fri Jun 15, 2018 8:46 pm

3of3 wrote:
Thu Jun 14, 2018 9:17 pm
on vanguard's website, they have an investing section with overviews on their offerings. the all-in-one (aka target date funds) section give you some guidance on which fund to select. when you select a fund, further down the page you will find a graphic with a slider bar and it will show you how the asset allocation changes as you move closer to the retirement date.

hope that helps!
It does, thanks!!

chattyanne
Posts: 16
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Fri Jun 15, 2018 8:52 pm

Leemiller wrote:
Thu Jun 14, 2018 8:36 pm
You are in a low tax bracket and you don’t get a 401k match so I’d open a Roth and focus on fully funding it each year. That’s 5,500 a year. You can also use it as an emergency fund if needed.

Have you checked your expected social security benefit? You don’t have a ton saved, but your living expenses are quite low. Congrats on the paid for house.
Right now at the age of 62 would be 1,062 and age 67 $1,519.

Once you have your social security benefits, you can figure how much you need to save to meet any gap in expenses vs social security. Generally, I’d assume a 4% rate of return. So 100k invested would give you 4K a year.
Thanks for sharing your thoughts. This also helps me how to look to the future more and plan better instead of just throwing darts w/ eyes closed.

I think you’re probably in better shape than you think. One thing to consider is trying to bring in more income or changing jobs for a raise. A few thousand more a year could really accelerate your pace.
As for possibly bringing in more income, I agree. This was my first thought before I got on this forum to ask questions. Anything is possible.

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akblizzard
Posts: 136
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Re: 47 and clueless - direction needed

Post by akblizzard » Fri Jun 15, 2018 9:01 pm

Welcome. Check out the suggested reading link on our forum. Educate yourself, if I can so can you.

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dratkinson
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Location: Centennial CO

Re: 47 and clueless - direction needed

Post by dratkinson » Fri Jun 15, 2018 9:24 pm

BH 47 and clueless, direction needed



Age 47
Income $33K
Annual living expense $14K ($1200/month)
Federal tax rate 12%, Indiana tax rate 3.23%
Emergency fund (EF) $10K.
Insurances, property taxes, vehicle registration,… covered separately.
Home paid for.
Annual retirement contributions $6K, but planning to increase.



Given above….



Your estimated retirement nest egg.

My financial calculator says you should be able to amass $278K by the age of 65. See Excel topic below so you can duplicate this for yourself in Excel.

A SWR (safe withdrawal rate) of 4% means you could withdraw $11K/yr (increased for inflation every year) at age 65 and your money would last for 30yr (your money is exhausted at age 95).

If you can live on a SWR of 2.5% ($7K/yr indexed for inflation), then your money would never be exhausted as your withdraws would be offset by your investment growth.

Meaning you only need $3K (=14K-11K, if you use 4% SWR) to 7K/yr (=14K-7K, if you use 2.5% SWR) from SS to cover your current living expenses*. (* SS is indexed for inflation, so any solution you find that works today should also work at 65.)

Data point. The 40/60 (40% stock/60% bond) AA (asset allocation) was reported to last longest under the pressure of retirement withdrawals. Meaning, one plan would be to hold an appropriate AA now, allow it to become more conservative over time, but remain at a fixed 40/60 AA once you naturally reach that point. Your choice. (No rush. Plenty of time to learn more and make this decision later. For now a more aggressive AA is appropriate for you.)



Your estimated SS benefits.

How much can you expect from SS? You need to find a SS calculator to give you an estimate of your annual SS benefits at retirement.
--Ask SS to provide you with your current earnings history.
--Then put your current income history into the SS calculator, and fill-in your future income history with reasonable estimates. (Idea: You could index your future earnings history for inflation at 3%/yr.)

Search "ask SS for earnings history": http://www.google.com/search?q=ask+SS+f ... gs+history
Search "SS benefit calculator": http://www.google.com/search?q=SS+benefit+calculator


What does the calculator say you can expect as annual SS benefits? (The more we know, the better we can help you tweak your plan.)



Your problem of paying for your retirement. Given above (retirement nest egg of $278K and a SS benefit >$3K/yr), it looks like your retirement problem has a solution.

Your solution becomes better if your SS benefit is larger than $3K/yr, and you can save more toward retirement.



Excel FV (future value = retirement nest egg) calculation.

You don’t need to perform the Excel exercises suggested. They were only suggested so you could get a sense that your problem of saving for retirement is solvable.

N.B. All calculations follow the GIGO rule (garbage in = garbage out). So a good answer requires good inputs.


Since you are familiar with Excel, you can duplicate the function of a financial calculator by using the Excel FV function.

Assumption:
--I = 7%, interest rate/compounding period. Be conservative. Assume no more that 7% annual return going forward.
--N = 18, number of compounding periods (years), 18 (= 65-47) until retirement.
--PMT = -6000, payment you invest each compounding period (year). Sign convention says use minus sign for money “out of your hand” and into something else.
--PV = -22000, present value, size of your current retirement investments. Sign convention says use minus sign.
--Type/mode = 0
--FV = Future value, that your retirement nest egg should grow-to given above assumptions.

Enter these cell values. (Don’t enter quote marks, only contents within quote marks.)
A1 = “I”, B1 = “N”, C1 = “PMT”, D1 = “PV”, E1 = “type/mode”, F1 = “FV”
A2 = 0.07, B2 = 18, C2 = -6000, D2 = -22000, E2 = 0, F2 = “=FV(A2,B2,C2,D2,E2)”

Sign convention used by compound interest formulas.
--A negative sign means money flows out of your hand and into an investment.
--A positive sign means money flows into your hand from an investment.

Type/mode. Excel used the term “type”, financial calculators use the term “mode”. Both answer the question “When is the payment made?”.
--“0” means the payment is made at the end of the compounding period (year).
--“1” means the payment is made at the beginning of the year… so one additional compounding period is earned due to the early payment.

Assuming “0” is conservative and covers the case for when small payments are made during the year.



Given above assumptions, it looks like you can expect to have $278K by age 65.

You can always invest more for retirement than $6K/yr for retirement. You would put $5.5K into your IRA, and the rest into a taxable brokerage account, or into your 401k. Your choice. The FV calculation doesn’t care where you invest the money.

Bottom line. The longer/more you can invest for retirement, the better for compounding, and for your retirement nest egg. Your retired self will thank you.

See Wiki topic on “Comparing Investments” to learn how to use Excel compound interest functions: https://www.bogleheads.org/wiki/Comparing_investments


Idea. You can chain several calculations together (output of first calculation becomes input into next calculation) to account for changing investment assumptions.

Why would you want to perform a chained calculation? Because some inputs change over the years.
--The amount you can invest changes.
--Your AA contains more bonds, so become more conservative, so experiences less growth*.

* I recall Vanguard has a table of the growth rates experienced by different AAs. I don’t recall where that information is stored and my old PC does not work well with Vanguard’s website. But I’ll look for this information when I go to the library this weekend.


Assume you can invest $6K/yr for 5yrs, then $10K/yr for the next 13yrs, and the market returns 7%**. What is the size of your final retirement nest egg? In this case you could chain 2 rows of calculations together to get the answer.

(** This may be an incorrect starting assumption for an appropriate TDR fund. And as the years pass and the TDR fund becomes more conservative, the chain calculations should account for that too. Otherwise, GIGO happens. Example: if you change investing assumptions 5x over 18yrs, then your chained calculations would need 5 rows. Easy peasy.)

--First row would look like above, but change N to be 5. The calculated FV ($65,360.57) would be linked into second row PV as a negative (sign convention).
--Second row would change N to be 13, PMT to be –10000 (sign convention), and PV to be the negative of the row one FV (sign convention). The second row FV would be the size of your final nest egg at age 65.
--Answer: $358,915.28

Have fun playing. What you are doing is building a reasonable plan to accumulate a retirement nest egg. Ensure your plan is feasible (that you use the best input values possible). Don’t lie to yourself*.

(* “We lie the loudest when we lie to ourselves.” If Vanguard says your desired AA only returns 6%/yr, then you must use that in your calculations.)

Luck is never a good strategy. Be conservative in your estimates, plan for the worst and hope for the best.


Build your plan. Then execute your plan.

You’ve taken the most important step by turning off the F-T loads and fees*. The next step is to continue investing in “something appropriate”. The money going-in is more important in the compound interest formulas than the actual investment chosen (discrete funds, or an all-in-one fund).

* Note. Your costs (loads, fees, taxes) are almost the only things you can control in investing.
--When you reduce your loads and fees in all accounts, you are increasing your “PMT” rate. This is why you must minimize loads and fees.
--When you reduce your taxes in taxable accounts, you are increases your earned “I” interest rate. This is why you must choose tax-efficient funds if you begin contributing to a taxable account.

You have from now until you retire to learn more and tweak your fund/ETF selections to be more appropriate for your needs. And since it’s tax-free to make changes in an IRA (or 401K) and Vanguard does not charge a fee to exchange between funds/ETFs, you can easily change later if you want to. Easy peasy.




tIRA vs rIRA?

--If what you learn by going through above exercise (estimate your annual SS benefits, estimate Excel FV calculation of your retirement nest egg) says you will need the full RMDs to live on during retirement, then might as well use a traditional IRA, so you get the tax benefit today. And delay paying taxes until you need the RMDs.

--If you learn that you will NOT need the full RMDs during retirement, then maybe use a Roth IRA so you can avoid the RMDs and delay the rIRA tax-free withdrawals, so giving more tax-free growth.


Invest your excess RMDs. If you use a traditional IRA, you will be required to made RMDs beginning at the age of 70.5. If your RMD + SS is larger than you need for living expenses, then put the excess into your taxable investing account and it is still invested. Easy peasy.



Savers tax credit.

Are you familiar with the savers tax credit? Are you using it today? It’s free money.

All contributions to formal* retirement plans (401k, IRA,…) qualify you for the savers tax credit. (* Contributions to taxable retirement accounts do not qualify for the savers tax credit.)

See: https://www.irs.gov/retirement-plans/pl ... ers-credit



Investing knowledge. There is a lot to learn about investing---saving for retirement, and then more to learn about spending in retirement. But the actions steps required to implement a wise investing strategy are relatively simple. This is why it is said, “Wise investing is simple, do a few thing right, and avoid serious mistakes.”

Example…

Sequence of return risk (SoRR) in retirement. This is a fancy term for “…what do you do when you are retired, the stock market is down and you need to sell (or take RMDs) to pay for your living expenses, but don’t want to be forced to sell stocks during a down market?”

One of many simple action steps to avoid SoRR in retirement. Some retired investors report handling this problem by keeping 5yrs of living expense liquid (savings, CDs, safe bond fund, stable value fund,…) to withdraw from during a down market. Why? Markets generally recover within 4yrs, so keeping 5yrs of living expense liquid means they should never be forced to sell equities during a down market. Then when the market (stocks) recovers, the 5yrs of liquidity is refilled by selling stocks. Easy peasy.

In your case, you could keep $70K (=$14K x 5) liquid to avoid the sequence of return risk in retirement. Or not, and use another method. Your choice.

But this is a decision you can postpone until you are nearing retirement. (Your $10K EF is fine for now.)



Bottom line. While there is a lot to learn, you don’t need to learn it all now. Why? You only need to learn the basics for now:
--how to reduce your costs (did that by moving to Vanguard),
--decide upon an appropriate AA (age in bonds is a conservative AA),
--choosing funds to implement your AA (doesn’t really matter because your saving rate is more important to the compound interest calculations than the specific funds/ETFs chosen),
--and where to place those funds (IRA, taxable, 401k*).

The rest you can learn as you need it. And you can always ask specific questions for a second opinion when a new financial issue arises.


* Idea to increase your IRA contribution above the annual $5.5K limit this year (the PV in the above compound interest formulas).

If you will find another job before next year, you could contribute as much as possible to your current employer’s bad 401k plan this year. Why?
--To increase the size of your tax-advantaged space---instead of putting the money in your taxable account. Why?
--More tax-advantage space is better than less.
--And when you leave your current employer, you are allowed to rollover your current 401k into an IRA. In this way you turn your employer’s bad option into a larger good contribution to your IRA.

Retirement plan rollover information.
General information: https://www.irs.gov/pub/irs-utl/oc-reti ... lovers.pdf
Wiki article: https://www.bogleheads.org/wiki/IRA_rol ... _transfers
Allowed rollovers (IRS chart may be more current): https://www.irs.gov/pub/irs-tege/rollover_chart.pdf
More information search: http://www.google.com/search?q=retirement+plan+rollover

Where would you get the money to make a lump sum contribution to your 401k? You could take $5K from your EF (leaving you with $5K in your EF). Then refill your EF after you begin your better job.

But suppose your employer doesn’t allow you to make a lump sum contribution to your 401k, what then? You could begin making payroll deductions to your 401k until the $5K has been made. Then zero your payroll deductions to your 401k after the $5K contribution has been made. During the time you were making payroll deductions to your 401k, you would make up the difference in your take-home pay by withdrawing from your EF to meet your living expenses.

Above idea could get an extra $5K into your IRA, after you change jobs. Or not. Your choice.






Edits. Errors. Completeness. Clarity.
Sorry for the length, but everything seemed to suggest something else.
Last edited by dratkinson on Sat Jun 16, 2018 10:19 am, edited 4 times in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

FireHorse
Posts: 48
Joined: Sat Nov 25, 2017 7:03 pm

Re: 47 and clueless - direction needed

Post by FireHorse » Fri Jun 15, 2018 9:58 pm

OP,
Please keep us posted what you decide to do and if you decide to switch to Vanguard or Fidelity or other financial institute, I hope you have a easy process and transition.

chattyanne
Posts: 16
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Sat Jun 16, 2018 7:22 am

FireHorse wrote:
Fri Jun 15, 2018 9:58 pm
OP,
Please keep us posted what you decide to do and if you decide to switch to Vanguard or Fidelity or other financial institute, I hope you have a easy process and transition.
I didn't waste any time. Already spoke with Vanguard and they are in the transfer process. I have filled out the paperwork and put in mailbox yesterday. I am going to go with the majority on these posts and put the IRA in the Target Retirement 2040. I also will open a Roth in the near future. I feel off balance right now mentally and financially but I know that once the dust settles and I get my investments set-up automatically this will calm down and I can feel somewhat normal again. I'm still wrapping my mind around this new language of tax brackets, saver's credit, abbreviations people use and truly planning ahead instead of throwing darts hoping to hit a target. Just bummed because I missed the rise of the markets in the last few years but learned to ask questions sooner and not just to a sole advisor. (if that makes sense)

FireHorse
Posts: 48
Joined: Sat Nov 25, 2017 7:03 pm

Re: 47 and clueless - direction needed

Post by FireHorse » Sat Jun 16, 2018 8:26 am

chattyanne wrote:
Sat Jun 16, 2018 7:22 am
FireHorse wrote:
Fri Jun 15, 2018 9:58 pm
OP,
Please keep us posted what you decide to do and if you decide to switch to Vanguard or Fidelity or other financial institute, I hope you have a easy process and transition.
I didn't waste any time. Already spoke with Vanguard and they are in the transfer process. I have filled out the paperwork and put in mailbox yesterday. I am going to go with the majority on these posts and put the IRA in the Target Retirement 2040. I also will open a Roth in the near future. I feel off balance right now mentally and financially but I know that once the dust settles and I get my investments set-up automatically this will calm down and I can feel somewhat normal again. I'm still wrapping my mind around this new language of tax brackets, saver's credit, abbreviations people use and truly planning ahead instead of throwing darts hoping to hit a target. Just bummed because I missed the rise of the markets in the last few years but learned to ask questions sooner and not just to a sole advisor. (if that makes sense)
You did yourself a huge favor by transfer to Vanguard. you are on the right track from now and on........congrats!!!
What happened has already happened, but what you have learned from this is tremendous. Its never too late.
Cheers to the future :beer

chattyanne
Posts: 16
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Sat Jun 16, 2018 3:42 pm

dratkinson wrote:
Fri Jun 15, 2018 9:24 pm
BH 47 and clueless, direction needed



Age 47
Income $33K
Annual living expense $14K ($1200/month)
Federal tax rate 12%, Indiana tax rate 3.23%
Emergency fund (EF) $10K.
Insurances, property taxes, vehicle registration,… covered separately.
Home paid for.
Annual retirement contributions $6K, but planning to increase.

You've given me much to chew on so if you don't mind I would like to take a nugget at a time so I can feel comfortable with my decisions moving forward.

Your estimated SS benefits.

How much can you expect from SS? You need to find a SS calculator to give you an estimate of your annual SS benefits at retirement.
--Ask SS to provide you with your current earnings history.
--Then put your current income history into the SS calculator, and fill-in your future income history with reasonable estimates. (Idea: You could index your future earnings history for inflation at 3%/yr.)

Search "ask SS for earnings history": http://www.google.com/search?q=ask+SS+f ... gs+history
Search "SS benefit calculator": http://www.google.com/search?q=SS+benefit+calculator


What does the calculator say you can expect as annual SS benefits? (The more we know, the better we can help you tweak your plan.)

I've always looked at what my statement said and never realized there was a calculator to help me plan. It is showing $2,931.00 which I stayed a bit conservative. Slowly the light bulb in my mind is turning on.


Savers tax credit.

Are you familiar with the savers tax credit? Are you using it today? It’s free money.

I actually have not heard of savers tax credit until the response of this post. Someone mentioned that if my AGI was 33,000 and I contributed $2000 to my IRA or the other eligible retirement plans, I would have received the credit. Correct me if I'm wrong. I just want to go over this with last years numbers to make sure I understand correctly. Last year, 2017, for me to receive the tax credit my AGI would have needed to be $31,000 or less. My total income ended up $36,897 (overtime and interest earned) and I contributed $2,800 to my IRA which brought my AGI to 34,097. So I missed the savers tax credit but if I would have invested $5,897 in eligible plans I would have received it. Am I correct? For 2018 my AGI will need to be $31,500 or less to receive the credit.

User avatar
Sandtrap
Posts: 4660
Joined: Sat Nov 26, 2016 6:32 pm
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Re: 47 and clueless - direction needed

Post by Sandtrap » Sat Jun 16, 2018 3:50 pm

chattyanne wrote:
Sat Jun 16, 2018 7:22 am
FireHorse wrote:
Fri Jun 15, 2018 9:58 pm
OP,
Please keep us posted what you decide to do and if you decide to switch to Vanguard or Fidelity or other financial institute, I hope you have a easy process and transition.
I didn't waste any time. Already spoke with Vanguard and they are in the transfer process. I have filled out the paperwork and put in mailbox yesterday. I am going to go with the majority on these posts and put the IRA in the Target Retirement 2040. I also will open a Roth in the near future. I feel off balance right now mentally and financially but I know that once the dust settles and I get my investments set-up automatically this will calm down and I can feel somewhat normal again. I'm still wrapping my mind around this new language of tax brackets, saver's credit, abbreviations people use and truly planning ahead instead of throwing darts hoping to hit a target. Just bummed because I missed the rise of the markets in the last few years but learned to ask questions sooner and not just to a sole advisor. (if that makes sense)
Excellent choice and first step.
Vanguard has a substantial family of funds to choose from vs many other brokerages.
1. Take it step by step. No stress.
2. First, get completely out of the old "frying pan" and into a safe place. No need to commit to this fund or that yet. Just move things over.
3. Then, go over the "Getting Started" wiki to get an understanding of personal investment finance, etc.
GETTING STARTED
https://www.bogleheads.org/wiki/Getting_started
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
4. Keep us updated and the forum experts will guide you from stormy seas to calm waters.
5. Fruitful things are ahead. No use worrying about what has been missed.

aloha
j

User avatar
FiveK
Posts: 4861
Joined: Sun Mar 16, 2014 2:43 pm

Re: 47 and clueless - direction needed

Post by FiveK » Sat Jun 16, 2018 5:46 pm

chattyanne wrote:
Sat Jun 16, 2018 3:42 pm
I actually have not heard of savers tax credit until the response of this post. Someone mentioned that if my AGI was 33,000 and I contributed $2000 to my IRA or the other eligible retirement plans, I would have received the credit. Correct me if I'm wrong. I just want to go over this with last years numbers to make sure I understand correctly. Last year, 2017, for me to receive the tax credit my AGI would have needed to be $31,000 or less. My total income ended up $36,897 (overtime and interest earned) and I contributed $2,800 to my IRA which brought my AGI to 34,097. So I missed the savers tax credit but if I would have invested $5,897 in eligible plans I would have received it. Am I correct? For 2018 my AGI will need to be $31,500 or less to receive the credit.
Yes, you understand correctly.

The saver's credit is a good thing, no question. Whether it is worth contributing into traditional accounts to reach it, however, depends on how much one has to contribute.

E.g.,
a) if your AGI with no traditional contribution is $33,000, contributing $2000 to a traditional account saves 12% due to the tax bracket alone, plus ($200/$2000 = 10%) due to the saver's credit for a total marginal rate of 22%.
b) if your AGI with no traditional contribution is $45,000, contributing $13,500 to a traditional account saves 12% due to the tax bracket alone, plus ($200/$13,500 = 1.5%) due to the saver's credit for a total marginal rate of 13.5%.

Situation "a" is more favorable for a traditional contribution than situation "b". Whether traditional should be used in neither, only "a", or both situations depends on what rate you expect to pay in retirement.

User avatar
dratkinson
Posts: 4216
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: 47 and clueless - direction needed

Post by dratkinson » Sat Jun 16, 2018 7:18 pm

chattyanne wrote:
Sat Jun 16, 2018 3:42 pm
dratkinson wrote:
Fri Jun 15, 2018 9:24 pm
BH 47 and clueless, direction needed



Age 47
Income $33K
Annual living expense $14K ($1200/month)
Federal tax rate 12%, Indiana tax rate 3.23%
Emergency fund (EF) $10K.
Insurances, property taxes, vehicle registration,… covered separately.
Home paid for.
Annual retirement contributions $6K, but planning to increase.

You've given me much to chew on so if you don't mind I would like to take a nugget at a time so I can feel comfortable with my decisions moving forward.

Your estimated SS benefits.

How much can you expect from SS? You need to find a SS calculator to give you an estimate of your annual SS benefits at retirement.
--Ask SS to provide you with your current earnings history.
--Then put your current income history into the SS calculator, and fill-in your future income history with reasonable estimates. (Idea: You could index your future earnings history for inflation at 3%/yr.)

Search "ask SS for earnings history": http://www.google.com/search?q=ask+SS+f ... gs+history
Search "SS benefit calculator": http://www.google.com/search?q=SS+benefit+calculator


What does the calculator say you can expect as annual SS benefits? (The more we know, the better we can help you tweak your plan.)

I've always looked at what my statement said and never realized there was a calculator to help me plan. It is showing $2,931.00 which I stayed a bit conservative. Slowly the light bulb in my mind is turning on.


Savers tax credit.

Are you familiar with the savers tax credit? Are you using it today? It’s free money.

I actually have not heard of savers tax credit until the response of this post. Someone mentioned that if my AGI was 33,000 and I contributed $2000 to my IRA or the other eligible retirement plans, I would have received the credit. Correct me if I'm wrong. I just want to go over this with last years numbers to make sure I understand correctly. Last year, 2017, for me to receive the tax credit my AGI would have needed to be $31,000 or less. My total income ended up $36,897 (overtime and interest earned) and I contributed $2,800 to my IRA which brought my AGI to 34,097. So I missed the savers tax credit but if I would have invested $5,897 in eligible plans I would have received it. Am I correct? For 2018 my AGI will need to be $31,500 or less to receive the credit.
Take it slow. It is reasonable to take things one step at a time.

Disclosure. It took me 5yrs after my forum review before I felt comfortable enough to deviate from the central advice I received. During that time I was getting experience managing my investments, learning my true risk tolerance, reading books/forum topics to learn about other alternatives investing routes,… and deciding what was the better route for me.

The forum has a saying, “There are many roads to Dublin.” The forum’s advice for new investors is to follow the main road to Dublin. But as you read more books you will learn about the alternate routes.

How do you know the main road from the alternate routes?
Simple action steps. When recommended authors agree, that is the main road to Dublin. When recommended authors disagree, those are alternate routes and are slightly more risky. We must know that we have the risk tolerance to follow an alternate route.

Who are the recommended authors?
Simple action step. Search the Wiki for the topic on recommended “books” (search term) and authors.



Savers tax credit. I don't qualify for the savers tax credit now. And when I did, I didn't know about it so missed it. So I’ve never learned the mechanics of getting the credit.


General advice from reading others' thoughts.

--When trying for the savers tax credit, you can lower your AGI by making deductible contributions to your formal retirement plans. A contribution to a traditional 401k/IRA is deductible. A contribution to a Roth 401k/IRA is not deductible. So if on the border between getting/losing the credit and getting the credit is your major goal, you should prefer a traditional 401k/IRA.

--If on the border between getting/losing the credit and you felt comfortable doing so, you could use some of your EF to increase your contribution to a traditional retirement plan.

--The deadline for contributing to a 401k is 31 Dec. The deadline for contributing to an IRA is the federal tax filing deadline (April of next year).

Simple action steps. So you could contribute to your 401k during the year (delay your IRA contribution until ~March of next year), then do a draft tax return early the next year, note how close you are to the border of getting/losing the credit, and lower your AGI (if you needed to) by making your only contribution to a traditional IRA before April.

--I've used an Excel tool (excel1040.com) to simulate my tax return for other purposes. It may be possible that you could use it to simulate your actions needed to get the savers tax credit.

The Excel tool is at excel1040.com. (It’s much faster than trying this simulation with any other tax software.)
--Download excel1040.com for 2017.
--Input your 2017 federal tax return data into excel1040 to create a known baseline. (Excel1040 should match your 2017 federal tax return exactly before proceeding.)
--Then tweak it to simulate applying for the savers tax credit. (The tweaks would be filling out the form to apply for the credit. And adjusting your deductions to lower your AGI.)

Of course, all tools only tell us what the numbers say. It's a different thing to turn the numbers into actions. In your case it might mean dipping into your EF to make an additional deductible IRA contribution to lower your AGI. Maybe you would feel it to be too much risk to use $5K of your EF to receive only a $500 credit (on the borderline, so only a 10% credit on a $5K deductible IRA contribution).

Still the exercise is not wasted if it makes you think about what is important to you. Would your rather have:
--a $10K EF and zero savers tax credit,
--or a $5K EF and $500 savers tax credit?

N.B. If you dip into your EF to get the savers tax credit in one year, it implies that following the same route next year that your EF would drop to $0 to get another $500 tax credit. Would you consider that to be an acceptable outcome?

Notice what has happened, our thought experiment has allowed you to look 2yrs forward and identify an unacceptable outcome. If given your current situation and the outcome from following this course of action will be unacceptable in 2yrs, then there is no need to start toward it today.

Your answers to this mental exercise of turning Excel numbers into actions, in either case (taking/avoiding the savers tax credit), is not wasted as it will help you understand more about your true risk tolerance.

Disclosure. That's what happened to me---took 5yrs to learn more about my true risk tolerance. Today I am not comfortable making an investment if it causes my EF to drop below 6mos of living expenses. I feel I must have that much to handle any true financial emergency. (I have also found a way to help me avoid the urge to chase bank teaser rates, while earning an acceptable return on my EF… but that’s another topic.)


Sorry I can't be of more help. I truly hope others more knowledgeable weigh in to help you with the mechanics of the savers tax credit.



Tax returns. Speaking of tax returns, free is better.

We can use excel1040 to do our paper federal tax return. But it does not do our state tax return; for that we must find another method.

In the past few years I’ve been using the freefile online tax software listed on the IRS website. We can get free tax returns (fed, state, efile) if our income is <$66K. I like the OLT (Online Tax) software.

See: https://www.irs.gov/filing/free-file-do ... s-for-free

You must follow the IRS referral link to the OLT website to get free tax returns.

To learn to use OLT, you should be able to use it to duplicate your last fed/state tax returns.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

chattyanne
Posts: 16
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Sun Jun 17, 2018 4:55 pm

Sandtrap wrote:
Sat Jun 16, 2018 3:50 pm
chattyanne wrote:
Sat Jun 16, 2018 7:22 am
FireHorse wrote:
Fri Jun 15, 2018 9:58 pm
OP,
Please keep us posted what you decide to do and if you decide to switch to Vanguard or Fidelity or other financial institute, I hope you have a easy process and transition.
I didn't waste any time. Already spoke with Vanguard and they are in the transfer process. I have filled out the paperwork and put in mailbox yesterday. I am going to go with the majority on these posts and put the IRA in the Target Retirement 2040. I also will open a Roth in the near future. I feel off balance right now mentally and financially but I know that once the dust settles and I get my investments set-up automatically this will calm down and I can feel somewhat normal again. I'm still wrapping my mind around this new language of tax brackets, saver's credit, abbreviations people use and truly planning ahead instead of throwing darts hoping to hit a target. Just bummed because I missed the rise of the markets in the last few years but learned to ask questions sooner and not just to a sole advisor. (if that makes sense)
Excellent choice and first step.
Vanguard has a substantial family of funds to choose from vs many other brokerages.
1. Take it step by step. No stress.
2. First, get completely out of the old "frying pan" and into a safe place. No need to commit to this fund or that yet. Just move things over.
3. Then, go over the "Getting Started" wiki to get an understanding of personal investment finance, etc.
GETTING STARTED
https://www.bogleheads.org/wiki/Getting_started
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
4. Keep us updated and the forum experts will guide you from stormy seas to calm waters.
5. Fruitful things are ahead. No use worrying about what has been missed.

aloha
j
Thanks for the encouragement Sandtrap. I can't begin to tell you how grateful I am for finding this forum.

chattyanne
Posts: 16
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Sun Jun 17, 2018 5:10 pm

FiveK wrote:
Sat Jun 16, 2018 5:46 pm
chattyanne wrote:
Sat Jun 16, 2018 3:42 pm
I actually have not heard of savers tax credit until the response of this post. Someone mentioned that if my AGI was 33,000 and I contributed $2000 to my IRA or the other eligible retirement plans, I would have received the credit. Correct me if I'm wrong. I just want to go over this with last years numbers to make sure I understand correctly. Last year, 2017, for me to receive the tax credit my AGI would have needed to be $31,000 or less. My total income ended up $36,897 (overtime and interest earned) and I contributed $2,800 to my IRA which brought my AGI to 34,097. So I missed the savers tax credit but if I would have invested $5,897 in eligible plans I would have received it. Am I correct? For 2018 my AGI will need to be $31,500 or less to receive the credit.
Yes, you understand correctly.

The saver's credit is a good thing, no question. Whether it is worth contributing into traditional accounts to reach it, however, depends on how much one has to contribute.

E.g.,
a) if your AGI with no traditional contribution is $33,000, contributing $2000 to a traditional account saves 12% due to the tax bracket alone, plus ($200/$2000 = 10%) due to the saver's credit for a total marginal rate of 22%.
b) if your AGI with no traditional contribution is $45,000, contributing $13,500 to a traditional account saves 12% due to the tax bracket alone, plus ($200/$13,500 = 1.5%) due to the saver's credit for a total marginal rate of 13.5%.

Situation "a" is more favorable for a traditional contribution than situation "b". Whether traditional should be used in neither, only "a", or both situations depends on what rate you expect to pay in retirement.
Thanks for verifying. I'm just trying to make sure I understand correctly. I will keep this in mind with the preference of raising my AGI to where the savers credit is out of touch via different job, small business, or part-time work)

chattyanne
Posts: 16
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Sun Jun 17, 2018 5:18 pm

dratkinson wrote:
Sat Jun 16, 2018 7:18 pm
chattyanne wrote:
Sat Jun 16, 2018 3:42 pm
dratkinson wrote:
Fri Jun 15, 2018 9:24 pm
BH 47 and clueless, direction needed



Age 47
Income $33K
Annual living expense $14K ($1200/month)
Federal tax rate 12%, Indiana tax rate 3.23%
Emergency fund (EF) $10K.
Insurances, property taxes, vehicle registration,… covered separately.
Home paid for.
Annual retirement contributions $6K, but planning to increase.

You've given me much to chew on so if you don't mind I would like to take a nugget at a time so I can feel comfortable with my decisions moving forward.

Your estimated SS benefits.

How much can you expect from SS? You need to find a SS calculator to give you an estimate of your annual SS benefits at retirement.
--Ask SS to provide you with your current earnings history.
--Then put your current income history into the SS calculator, and fill-in your future income history with reasonable estimates. (Idea: You could index your future earnings history for inflation at 3%/yr.)

Search "ask SS for earnings history": http://www.google.com/search?q=ask+SS+f ... gs+history
Search "SS benefit calculator": http://www.google.com/search?q=SS+benefit+calculator


What does the calculator say you can expect as annual SS benefits? (The more we know, the better we can help you tweak your plan.)

I've always looked at what my statement said and never realized there was a calculator to help me plan. It is showing $2,931.00 which I stayed a bit conservative. Slowly the light bulb in my mind is turning on.


Savers tax credit.

Are you familiar with the savers tax credit? Are you using it today? It’s free money.

I actually have not heard of savers tax credit until the response of this post. Someone mentioned that if my AGI was 33,000 and I contributed $2000 to my IRA or the other eligible retirement plans, I would have received the credit. Correct me if I'm wrong. I just want to go over this with last years numbers to make sure I understand correctly. Last year, 2017, for me to receive the tax credit my AGI would have needed to be $31,000 or less. My total income ended up $36,897 (overtime and interest earned) and I contributed $2,800 to my IRA which brought my AGI to 34,097. So I missed the savers tax credit but if I would have invested $5,897 in eligible plans I would have received it. Am I correct? For 2018 my AGI will need to be $31,500 or less to receive the credit.
Take it slow. It is reasonable to take things one step at a time.

Disclosure. It took me 5yrs after my forum review before I felt comfortable enough to deviate from the central advice I received. During that time I was getting experience managing my investments, learning my true risk tolerance, reading books/forum topics to learn about other alternatives investing routes,… and deciding what was the better route for me.

The forum has a saying, “There are many roads to Dublin.” The forum’s advice for new investors is to follow the main road to Dublin. But as you read more books you will learn about the alternate routes.

How do you know the main road from the alternate routes?
Simple action steps. When recommended authors agree, that is the main road to Dublin. When recommended authors disagree, those are alternate routes and are slightly more risky. We must know that we have the risk tolerance to follow an alternate route.

Who are the recommended authors?
Simple action step. Search the Wiki for the topic on recommended “books” (search term) and authors.



Savers tax credit. I don't qualify for the savers tax credit now. And when I did, I didn't know about it so missed it. So I’ve never learned the mechanics of getting the credit.


General advice from reading others' thoughts.

--When trying for the savers tax credit, you can lower your AGI by making deductible contributions to your formal retirement plans. A contribution to a traditional 401k/IRA is deductible. A contribution to a Roth 401k/IRA is not deductible. So if on the border between getting/losing the credit and getting the credit is your major goal, you should prefer a traditional 401k/IRA.

--If on the border between getting/losing the credit and you felt comfortable doing so, you could use some of your EF to increase your contribution to a traditional retirement plan.

--The deadline for contributing to a 401k is 31 Dec. The deadline for contributing to an IRA is the federal tax filing deadline (April of next year).

Simple action steps. So you could contribute to your 401k during the year (delay your IRA contribution until ~March of next year), then do a draft tax return early the next year, note how close you are to the border of getting/losing the credit, and lower your AGI (if you needed to) by making your only contribution to a traditional IRA before April.

--I've used an Excel tool (excel1040.com) to simulate my tax return for other purposes. It may be possible that you could use it to simulate your actions needed to get the savers tax credit.

The Excel tool is at excel1040.com. (It’s much faster than trying this simulation with any other tax software.)
--Download excel1040.com for 2017.
--Input your 2017 federal tax return data into excel1040 to create a known baseline. (Excel1040 should match your 2017 federal tax return exactly before proceeding.)
--Then tweak it to simulate applying for the savers tax credit. (The tweaks would be filling out the form to apply for the credit. And adjusting your deductions to lower your AGI.)

Of course, all tools only tell us what the numbers say. It's a different thing to turn the numbers into actions. In your case it might mean dipping into your EF to make an additional deductible IRA contribution to lower your AGI. Maybe you would feel it to be too much risk to use $5K of your EF to receive only a $500 credit (on the borderline, so only a 10% credit on a $5K deductible IRA contribution).

Still the exercise is not wasted if it makes you think about what is important to you. Would your rather have:
--a $10K EF and zero savers tax credit,
--or a $5K EF and $500 savers tax credit?

N.B. If you dip into your EF to get the savers tax credit in one year, it implies that following the same route next year that your EF would drop to $0 to get another $500 tax credit. Would you consider that to be an acceptable outcome?

Notice what has happened, our thought experiment has allowed you to look 2yrs forward and identify an unacceptable outcome. If given your current situation and the outcome from following this course of action will be unacceptable in 2yrs, then there is no need to start toward it today.

Your answers to this mental exercise of turning Excel numbers into actions, in either case (taking/avoiding the savers tax credit), is not wasted as it will help you understand more about your true risk tolerance.

Disclosure. That's what happened to me---took 5yrs to learn more about my true risk tolerance. Today I am not comfortable making an investment if it causes my EF to drop below 6mos of living expenses. I feel I must have that much to handle any true financial emergency. (I have also found a way to help me avoid the urge to chase bank teaser rates, while earning an acceptable return on my EF… but that’s another topic.)


Sorry I can't be of more help. I truly hope others more knowledgeable weigh in to help you with the mechanics of the savers tax credit.



Tax returns. Speaking of tax returns, free is better.

We can use excel1040 to do our paper federal tax return. But it does not do our state tax return; for that we must find another method.

In the past few years I’ve been using the freefile online tax software listed on the IRS website. We can get free tax returns (fed, state, efile) if our income is <$66K. I like the OLT (Online Tax) software.

See: https://www.irs.gov/filing/free-file-do ... s-for-free

You must follow the IRS referral link to the OLT website to get free tax returns.

To learn to use OLT, you should be able to use it to duplicate your last fed/state tax returns.
Thanks Dratkinson! You're more help than you know. I have much to study but I do feel I am finally moving in the right direction. As for the Emergency Fund, it will not be wasted for a silly savers credit. ha ha I finally hit my $10,000 goal two weeks ago and it's wasn't easy! Whew! Now for bigger things...ugh! :happy

SteveJ2
Posts: 30
Joined: Thu Nov 26, 2015 5:58 pm

Re: 47 and clueless - direction needed

Post by SteveJ2 » Sun Jun 17, 2018 5:33 pm

I'm sorry to hear about your situation, but glad you are starting on the right track. I know that when you start out the volume of information can be overwhelming. Others have made good reading recommendations, and one book I'd highlight in particular is The Bogleheads' Guide to Investing. It's a nice summary of a lot of the input you would receive here.

chattyanne
Posts: 16
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Tue Jun 19, 2018 5:56 pm

FiveK wrote:
Thu Jun 14, 2018 7:33 pm
chattyanne wrote:
Thu Jun 14, 2018 6:54 pm
FBLAX is back although it's advertised as front but I haven't seen any fees whatsoever on this unless I'm overlooking something....which is possible.
It's possible that the load is being waived because you already have another fund with them. Class A shares (that's the "A" in Franklin Balanced A) aren't back end loaded. See Understanding Mutual Fund Classes | FINRA.org.
I wanted to make a correction with my previous statement on the FBLAX. As you guys have said, it is front loaded. :oops: The $500 that opened the fund had a sales charge rate of 5.77%. I don't see any charges after that because it was being increased by dividends. I didn't see it because it was the very first transaction. I'm still expecting something on the back end. Honestly, I've looked at this for years (at least 7) and I don't get it. Is there an elementary sample of how these fees are taken out? I'm feeling dumb asking but this is what I know...

I invest $250
share price is $2.32 but I get the shares for POP $2.42 Is the POP part of the fees...sales charge rate?
Yearly maintenance fee of $15.00

They advertise FKINX
Gross Expense Ratio 0.63% --- ummm uhhh part of the $15 yearly maintenance fee?

Net Expense Ratio .62% --- ummm same as above but a little less? (banging my head on the desk :annoyed )

Max Initial Sales Charge 4.25% ---- This is telling every time I purchase shares there will be a sales charge which will fluctuate but not over 4.25%?

CDSC 0.00%

12b-1 Fee 0.15% ---- Is this blended in with the yearly fees?


Sorry, I'm just trying to understand the fees and mistakes of my past so I can understand and make better choices moving forward. Please tell me they make it complicated on purpose so I don't feel like a complete dork.

User avatar
dratkinson
Posts: 4216
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: 47 and clueless - direction needed

Post by dratkinson » Wed Jun 20, 2018 10:01 pm

chattyanne wrote:
Tue Jun 19, 2018 5:56 pm
...

Sorry, I'm just trying to understand the fees and mistakes of my past so I can understand and make better choices moving forward. Please tell me they make it complicated on purpose so I don't feel like a complete dork.
Search Investopedia for a description of investing fees.
Search: http://www.google.com/search?q=investin ... opedia.com

Also see “fees you should never pay”: https://www.investopedia.com/advisor-ne ... never-pay/



I found the Vanguard link to the long-term returns from its model portfolios.
See: https://personal.vanguard.com/us/insigh ... llocations

Simple action steps*. (1) Invest in TSM+TBM at an age-appropriate AA (asset allocation: stock/bond ratio), (2) in discrete funds or an all-in-one fund, and (3) expect something close to Vanguard's reported long-term return on our investments. (* Translation of Vanguard notes at the end of above link.)



You could use Vanguard’s reported LT returns on its model portfolio for your AA to wag* your future investment return, to guesstimate the size of your nest egg at retirement. (* Use a financial calculator, or Excel’s FV function.)

But (1) individual investors are not as efficient as Vanguard because we make investing mistakes*, and (2) some on the forum believe LT returns will be lower going forward than they were in the past, so I generally assume my LT return will be ~7% before inflation (less after inflation). (* Read some of the recommended books on behavioral investing to understand the mistakes individual investors are prone to making. To be forewarned of potential mistakes is to be forearmed against them.)



Why would we want to guesstimate the size of our retirement nest egg? Because it is one piece of the puzzle required to plan for our retirement. Others would be identifying additional sources of income (anticipated SS benefits,...) and costs of living (health care, taxes,...) in retirement.

If you can foresee a problem in ~20yrs, then you can begin working today to head it off. Everything we do to plan for our preferred retirement is called our Plan A.

And if we can't make our preferred Plan A work, then we need to come up with a "Plan B"... which typically means planning to work longer and/or reducing our costs of living in retirement.

Search forum for "Plan B": http://www.google.com/search?q=%22plan+ ... rg%2Fforum

Simple action steps. Plan for the worst. Hope for the best.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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