quote:Originally posted by skillery: Your disposable income won't start to skyrocket until your late 40's. Until then you've got kids to raise, homes to furnish, and mortgages to pay.
Unless you have children at 37 and 47, like my parents.
'course, my 68-year-old dad seems to have no plans to retire at all...
quote:Originally posted by blacwolve: I'm confused. Is there any particular reason so many people have credit cards. I don't right now (I use my debit for everything) and I don't see why I would get one in the future. Is there something I'm missing?
There can be any number of reasons:
Building credit has already been mentioned.
Credit cards are an easy-to-obtain failsafe in case of emergency: if you don't have 4 or 5 thousand dollars saved, a credit card can make a serious difference in determining whether you can afford major car, medical or other unforseen expenses.
Many credit cards offer a rewards and/or incentive program of some kind that encourages you to use the card instead of your debit card (although not me; my debit cards get 1% cashback on all purchases, which is worth way more to me than any stupid airline miles).
Some people like the ease of not having to closely track a check registrar, since your credit card statement gets mailed to you at the end of the month. Some people prefer the organization of paying one bill.
Some people prefer not to use debit cards because they're directly linked to your checking account.
Believe it or not, there are STILL some places that will not accept debit, even when it's run as credit.
There are inevitably more reasons; these are just the ones I can think of off the top of my head.
Posts: 4313 | Registered: Sep 2004
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posted
Also, credit cards are protected against theft (identity and otherwise) where debit cards are generally not. If someone uses your credit card, you're generally not liable (at least beyond a small amount), but it can be hard to impossible to fight debit card charges you didn't make.
Posts: 15770 | Registered: Dec 2001
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posted
My father sat us down when we were teenagers to talk about investing for the future. As a result, I would definitely start saving and investing as soon as possible. At this link is a chart showing the growth in value over time at various interest rates.
Consideration should be given to paying off high interest debt, of course. But assuming there isn't any, investing early and often will net you more than later. If invested correctly, you can even stop contributing to the fund after some time and still come out way ahead. Because of compounding, it is the early contributions that cause the large balances at the end of the program, not the late ones.
Some of my siblings did this, and some didn't. The ones who did were able to use some of that money to pay for their college educations and buy homes with cash when it came time.
Posts: 1379 | Registered: Feb 2002
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quote:Originally posted by Dagonee: I have some calculations I use to demonstrate the problems with this premise. I'll try to post them later.
Do your calculations take into account the effect of inflation on durable goods that you might have acquired?
Do your calculations take into account the money those durable goods would have saved you.
How much money will you save if you choose to own a washer and dryer rather than gassing up the car to go feed quarters to the machine at Suds Your Duds?
How much money in doctor bills will you save if your kids don't have to crawl around on the dirty floor at Suds Your Duds?
How much money would you save if you weren't constantly paying for repairs on your lemon car, ancient furnace, and leaky roof?
How much money will you save if the money you didn't put into a 401k allows you to fill your pantry once a month rather than having to drive to Quicky Mart three or four times a week?
What good is all that 401k money if you have to live in cousin Bubba's double-wide?
Posts: 2655 | Registered: Feb 2004
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There is plenty of room between "investing in your retirement early" and "living with your mom until you're 50".
Posts: 5462 | Registered: Apr 2005
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Skillery, your questions are basically meaningless, because none of the parade of horribles you've made up is incompatible with retirement savings.
Posts: 26071 | Registered: Oct 2003
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quote:Originally posted by Dagonee: I have some calculations I use to demonstrate the problems with this premise. I'll try to post them later.
Do your calculations take into account the effect of inflation on durable goods that you might have acquired?
Do your calculations take into account the money those durable goods would have saved you.
How much money will you save if you choose to own a washer and dryer rather than gassing up the car to go feed quarters to the machine at Suds Your Duds?
How much money in doctor bills will you save if your kids don't have to crawl around on the dirty floor at Suds Your Duds?
How much money would you save if you weren't constantly paying for repairs on your lemon car, ancient furnace, and leaky roof?
How much money will you save if the money you didn't put into a 401k allows you to fill your pantry once a month rather than having to drive to Quicky Mart three or four times a week?
What good is all that 401k money if you have to live in cousin Bubba's double-wide?
Let's talk about pre vs. post tax money for a second...
A $100 contribution into a traditional 401(k) plan does not translate to a net loss of $100 per paycheck. You have to take into consideration the fact that 401(k) contributions are taken out on a pre-tax basis from your paycheck.
This means that your gross income is effected by the deduction. Which means you pay less in taxes. Which means you might actually net more money come year end (depending upon your tax bracket). Which means you can afford to buy your children shoes instead of making them out of cat gut and old tires.
quote:Originally posted by Primal Curve: (depending upon your tax bracket)
You're assuming that contributing to a 401K before taxes somehow throws you into a lower tax bracket. The lady at Suds Your Duds didn't look like she was on the borderline between tax brackets.
Posts: 2655 | Registered: Feb 2004
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quote:Originally posted by skillery: Unfortunately the HR lady at the factory is going to persuade a lot of her peons to sign up for a 401K before the poor folks get their first paycheck.
And the bank will laugh all the way to the...
First of all, banks don't provide 401k plans. They're typically provided by record-keepers and investment firms (TD Ameritrade, Fidelity, etc. etc.). The money has to be set into a custodial account seperate from the general assets of the company that provides the service.
Also, Judy McDoody, the HR Queen, is required by IRS regulations to promote the 401(k) plan to all employees who are not in a Collective Bargaining Agreement (Union). R-E-Q-U-I-R-E-D. Read me?
The concept is called "universal availability." The 401k plan cannot, by law, discriminate against certain employees. The plan has to go through compliance testing every year to ensure this. That means that, if the plan is not bein utilized by the other employees, the total contribution limit is decreased to make up for the fact that the plan is "top heavy".
That means that Joe Schmo the AR King who would normally be able to contribute $15000 into his retirement plan now can only contribute 3000 or even less because Judy McDoody didn't do her effing job.
Seriously, do you want to play this game? I work in the industry and I'll crush you.
Posts: 4753 | Registered: May 2002
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quote:A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section...
(4) if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees (within the meaning of section 414(q)). For purposes of this paragraph, there shall be excluded from consideration employees described in section 410(b)(3)(A) and (C).
quote:You're assuming that contributing to a 401K before taxes somehow throws you into a lower tax bracket.
No, his statement did not in any way depend on that assumption.
If you had simply said that people should not save retirement money in such a manner that causes them to spend money inefficiently, I wouldn't really care. But you suggested that retirement savings shouldn't start until the kids are grown and the house is paid off. And that's advice that can cost someone hundreds of thousands or even millions of dollars.
Posts: 26071 | Registered: Oct 2003
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I currently have 15% of my income going toward my TSP (civil service, kinda like 401k). I'm single living in an apartment, so I know that'll change. I do have student loans, but not many, and no credit card/car debts.
Posts: 1069 | Registered: Feb 2005
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quote: This is another common mistake if you are trying to improve your credit score. If you pay it off every month IT ISN'T CONSIDERED CREDIT!
Sorry to shout, but this cost me two years of repairing my credit score about 10 years back. You HAVE to carry a balance or it doesn't get reported at all, and never benefits you. The balance doesn't have to be high...ANY balance, even $5, will work, but paying it all off simply doesn't work.
This is incorrect. Scholar is right, so long as the card is used it doesn't matter if you pay it off every month. A few months ago, both my bank and a school I'd applied to before alerted me that my identity information had been stolen from each one. I signed up for the Equifax Three-in-one monitoring service that allows me to see my credit report at any given time and alerts me of any changes. Like Scholar said, it reports how much I have on the card at whatever time they ask for the data. Carrying a balance is not reported and makes no difference. While the credit monitoring service is expensive, I've found it extremely educational. To any one who's considered paying for it, I would recommend trying it for at least a year just to see how everything gets reported.
quote: If you feel you can use it responsibly - and really, you need to sit down and ask yourself whether you can do this. I and all my peers in high school were told to get a credit card and never exceed a set percentage of our limit and pay it off in full every month as an exercise in understanding and building credit, and I'm fairly certain that advice caused many people who would not have gotten credit cards otherwise to jump into enormous debt holes.
I agree that knowing yourself is important in this area. But I have had the exact opposite experience with credit cards. In high school, my peers and I were encouraged to get credit cards and pay them off every month. It's now my senior year in college and I have an extremely high credit score solely because of this approach. My other friends from high school that I've talked to about this have had the same experience. If you have the self-discipline to pay it off every month, I strongly encourage getting a card.
Posts: 1947 | Registered: Aug 2002
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quote:Originally posted by Dagonee: And that's advice that can cost someone hundreds of thousands or even millions of dollars.
quote:Originally posted by Primal Curve: Sheesh. Hyperbole at work.
So it's in HR's (and the $13000/year crowd's) best interest, in order to prevent a top-heavy situation, to sign up as many peons as possible, regardless of their double-wide and Suds Your Duds status.
Posts: 2655 | Registered: Feb 2004
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It's in the peons' best interest, regardless of their double-wide and Suds Your Duds status. I can't believe you're actually advocating that saving for retirement is a bad idea. Do you just want everybody to rely on Social Security or something?
Posts: 1947 | Registered: Aug 2002
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quote:Originally posted by Amanecer: I can't believe you're actually advocating that saving for retirement is a bad idea.
Because retirement is a myth. At no time in the history of man, up until the close of WWII has there been such a thing as "retirement." And as I've already stated, most people are dead within five years of achieving that status. There is no historical proof that the concept is viable.
Saving for old age benefits mainly the health care industry in supporting elevated medical costs, and financial institutions ("I'll crush you) that skim their share off the top of whatever the peons manage to scrape together, and Uncle Sam who fills his pockets from death taxes.
Put the money in your pocket and there will be no doubt about who the beneficiary is.
Posts: 2655 | Registered: Feb 2004
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If you save $100 a month and earn 8% a year, you will have $149,036 after 30 years. If you do that for 10 years less - 20 years - you will only have $58,902. Note that if you double your contributions for those 20 years, you'll still only $117,804. In other words, you'll have put in $12,000 more, but still have some $31,000 less.
That's a difference of $90,134.
Now, imagine you stop saving after 10 years but wait another 20 before retiring. You have a total of $90,623 - $31,721 less than you would have had after saving twice as long but 10 years later.
Saving early is simply smart.
Posts: 26071 | Registered: Oct 2003
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quote:Originally posted by Dagonee: ...you will have $149,036 after 30 years
...provided a stable rate of return.
...provided that those numbers on paper are still worth something after somebody engineers an inflationary crisis such as a war to return the real value of those numbers on paper to hard assets in the pockets of the same people who have always held the real wealth.
...provided that you're still alive.
quote:Originally posted by Dagonee: If you do that for 10 years less
...then that's 10 year's of play money that you would have enjoyed during your flash-in-the-pan existence.
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And if you are, then either the people who didn't waste their money playing for 10 years have to pay for you, you don't get to retire, or you live a miserable existence.
Posts: 26071 | Registered: Oct 2003
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quote:Originally posted by skillery: Saving for old age benefits mainly the health care industry in supporting elevated medical costs, and financial institutions ("I'll crush you) that skim their share off the top of whatever the peons manage to scrape together, and Uncle Sam who fills his pockets from death taxes.
Wohoo! I get to be The Man.
Your entire mentality towards retirement is so deeply flawed, I can only believe it stems from pure ignorance. The worst part about it is, if you keep up this mentality, I'll be the one paying for your healthcare, food and housing when the day finally comes where no one will hire you because you're too old and senile and you don't have any money because you decided to rebel against those jerks up in Washington and not save any money.
Have fun! I'll be driving by you in my Winnebago Space Ship on my way to Mars for the weekend.
Posts: 4753 | Registered: May 2002
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quote:Because retirement is a myth. At no time in the history of man, up until the close of WWII has there been such a thing as "retirement." And as I've already stated, most people are dead within five years of achieving that status. There is no historical proof that the concept is viable.
I don't see why you need historical evidence for retirement. But since you claim to need it, didn't old people used to go and live with their children when they stopped being able to work? That is a form of retirement. Few people are phsyically capable of working until the day they die. As for it being a myth, um, both sets of my grandparents are retired. Is that just a figment of my imagination? My dad's mother is completely independent because she saved for retirement. My mom's parents are completely dependent on social security and their children because they didn't save. I don't think it's a shocker that my dad's mother is much, much happier with her situation.
This is the worst conspiracy theory I have ever heard.
Posts: 1947 | Registered: Aug 2002
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quote:Originally posted by Primal Curve: Your entire mentality towards retirement is so deeply flawed, I can only believe it stems from pure ignorance.
...and not save any money.
The connection between the saving of money and retirement is contrived. It is a construct that gives financial institutions a mechanism for locking up your assets for a predetermined period.
It would be equally valid to draw a connection between retirement and the cultivation of close friends and family, or between retirement and the acquisition of material goods. But these connections do not benefit the financial institution.
Posts: 2655 | Registered: Feb 2004
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Let me know when having material goods helps you acquire food and medical care at anything near a reasonable rate of return .
As for family and friends, this only works if the population is growing. In a fairly stable or shrinking population there are insufficient people to support the aging, particularly as the aging live longer and more expensive lives.
Posts: 15770 | Registered: Dec 2001
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quote:Originally posted by fugu13: Let me know when having material goods helps you acquire food and medical care at anything near a reasonable rate of return
Well, you might have to convert it back to money first but...how about real estate? Even if you don't convert real estate to money, you can cultivate your food and grow your own medicinal marijuana. Better make that California real estate. Hey, we could be neighbors!
Posts: 2655 | Registered: Feb 2004
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quote:Originally posted by skillery: Your disposable income won't start to skyrocket until your late 40's. Until then you've got kids to raise, homes to furnish, and mortgages to pay. You need all that money now when you're young. Why put it out of your reach in a 401k?
You'll have plenty of money to save when the kids are gone, and the house is paid off.
Aside from medical expenses, how much money does it take to keep an old fart in a rocking chair alive?
Oh, and reliable transportation is also a good investment.
Saving money later in life doesn't provide you enough years of compound interest, or company matching dollars, which is completely free money.
Compound interest is one of the most powerful forces in personal finance, but you would be amazed at how many people don't really understand the concept and how powerful it can be.
Posts: 15082 | Registered: Jul 2001
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Other issues with your posts (there are many).
Death Taxes No such thing on a 401(k). This just, once again, displays your complete ignorance on the subject.
Distributions to a beneficiary on a 401(k) plan are taxable as income. The money is exempt from the normal, early distribution penalty of 10% (which exists to DETER people from taking early distributions). The beneficiary has the option of spreading the distribution out over a 5 year period or in what is referred to as Substantially Equal Periodic Payments which means that, if they take the money out over their remaining life expectancy, they don't have to take it out as one lump sum
Also, as of 2007 and thanks to the Pension Protection Act, non-spousal beneficiaries now have the option of rolling over the funds into another qualified retirement plan (IRA, 401k, 403b, 457b) without being taxed.
So, suffice it to say, Uncle Sam is hardly lining his pockets with this money. So you can just go ahead a shut up about that.
Financial Institutions "Skimming off the Top." You make it sound like every financial institution should be a non-profit or something. They're not- they're a business and it's a very very competitive market. Fees are incredibly low compared to 20 years ago. 401ks are very easy to manage with computer systems as sophisticated as they are now.
Still, the plans aren't free and the companies are still expected to make money by owners and shareholders. To fault them for charging fees is ridiculous- especially when those fees are almost ALWAYS less than 1%. So seriously, stop the conspiracy theory nonsense. This isn't Drudge.
Posts: 4753 | Registered: May 2002
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If you have $2000 to save, and you add $2000 a year......
You are age 40, and will retire at age 60. You have 20 years to save, right?
You investment, at a yearly compounded rate of a modest 6%, will be worth $84,399.72. That will last less than 3 years, living at $30,000 a year. And that doesn't account for inflation.
The same amount, but at age 30 (starting saving 10 years earlier), would be worth $179,090.34. With 40 years, if you start at age 20, it would be worth $348,666.80.
That is without changing anything other than the amount of time saved. You get interest on the interest for those extra years, resulting in much more money.
If you have a company matching program, those values are even greater. Instead of $2000 a year, you get $4000 (if it is for dollar to dollar matches).
That gives you $162,385.18 after 20 years; $346,693.69 after 30 years; and $676,762.17 after 40 years of saving.
In the 40 years situation, the company match give a benefit of $328 095.37....without costing you a single cent more from your paycheck. The company pays the extra, and you keep the interest.
Posts: 15082 | Registered: Jul 2001
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posted
Let's talk about Roth 401k Plans now as well. Yes, Roth 401ks exist (as do Roth 403bs).
We're talking about an instrument that has GAINS (that would be interest, capital gains and dividends) exempt from taxes.
It's like the greatest thing ever. Sure, you have to pay taxes now, but that's the best part! If you're in a lower income tax bracket right now (say a graduate student or something) and you're aiming for the big bucks later (lawyer or something), you can pump all that money into the Roth 401k at your lower tax bracket now and then, upon distribution, not pay a dime in taxes.
posted
I worked for about a year in a mortgage company. I have helped about 20 people repair their credit to the point that they could qualify for a loan.
I am positive about this. If you don't carry a balance, it isn't credit, and does not effectively raise your credit score. The only way it helps is if you keep a credit card open for a long time. About 20% of your credit score has some grounding in Length of Credit.....in other words, how long you have had a card. Some people close all their accounts in order to improve their credit score and lower it accidentally because they close a 16% card they have had for 20 years, not realizing that all their low interest cards are only 3 months old.
If you don't use it, or don't carry a balance, it doesn't RAISE you credit score at all. Open lines of credit can hurt you, but it is rare. I never had a loan denied because of too MUCH credit history, but lots of my clients needed MORE credit because their limits were too low. They were getting negative credit hits just for having a $500 balance, because it used 50% of their available credit.
skillery, tell my dad retirement is a myth. He his golfing in AZ right now, after coming back from his most recent vacation in Europe.
BTW, his dad died when he was about 15, and his mom never worked. He was so poor his teachers bought him shoes in grade school. He earned every penny he has, and the only reason he could retire at 60 is because he did the complete opposite of what you recommend.
Posts: 15082 | Registered: Jul 2001
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quote: I am positive about this. If you don't carry a balance, it isn't credit, and does not effectively raise your credit score.
Well, if 20% of the credit score comes from length of time held and I believe around 30% comes from percentage of credit used, then half of your score will still be positively affected by not carrying a balance even if you are correct. But looking at my credit report, which is all anybody else sees, I don't see how they could differentiate between whether I'm carrying a balance or paying it off. Also, in March I had a 700+ credit score and at that time one credit card was the only thing on my account. How did the score get so high if paying it off every month doesn't raise your score?
Sorry to be a nuisance about this, but I'd really like to understand this process. What makes you so certain that it works the way you said?
Posts: 1947 | Registered: Aug 2002
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posted
I'm not as sure as either of you gentlemen, but most of the articles and interviews I've read and listened to recommend having a small balance on at least one credit card to improve your credit score.
Posts: 4753 | Registered: May 2002
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quote:And as I've already stated, most people are dead within five years of achieving that status.
You've stated it, yes. That doesn't mean it's true. Can you support it with any recent statistics?
Depends on whom you want to listen to. Financial institutions will tell you that it's not unusual to live 30 years after retirement. The Boeing study has you dead within a year and a half.
posted
According to that article, those "working retired" are exactly the people who didn't plan for it. Insufficient savings, mortgages that aren't yet paid off, et cetera. They're a perfect example of why you should plan for it.
Added: The obvious thing to do is look at life expectancy, which shows that the 1.5/5-year death and the 30-year death are both outliers given the average retirement age.
Posts: 10886 | Registered: Feb 2000
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Beyond that, this article provides some compelling reasons why saving for retirement isn't stupid:
quote:A closer look at the working retired population reveals a dichotomy: two-thirds of working retired survey respondents returned to the workforce because they "wanted to," but the remaining one-third went back out of economic necessity. They "had to." Average household investable assets for these "wanted to" workers are almost $550,000, compared to average investable assets of $140,000 for the "had to" worker.
A large group of these "wanted to" workers went back to work expecting non-financial rewards. Close to half thought working might make them healthier and more energetic, and they also saw it as a way to keep themselves in top mental form. These were motivations of less than one-third of those working from necessity.
...
"Our study reveals an important message for today's workers," Mr. Tyrie said. "A significant subset of working retirees today are forced to return to the workforce because of inadequate saving and investing. Working in their seventies to pay bills is not the portrait of retirement most Americans envision."
posted
The Boeing study, with people dying within 18 months, was backed by a group that wanted to prove that the pension fund was over-funded, so that they could dip into it for other corporate purposes.
Posts: 2655 | Registered: Feb 2004
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