Personal Retirement Funds

[Dangerkitty]

The Roth IRA sounds like a great deal, but what if, in the future, some "crisis" arises and the powers that be, feel they HAVE to tax the withdrawals in order to deal with the "crisis", real or otherwise? I just don't trust 'em to keep up their end of the bargain. Regular IRAs and 401ks for me. "A bird in the hand is worth two in the bush" YMMV

When you retire the government will take 30%-40% of all money withdrawn from a 401k.

If you retire with $1,000,000 for example the government could take up to $400,000.

What makes you think that they wont increase what they take out of 401ks?

Your logic makes no sense.

 

[Dangerkitty]

1. Visit http://www.debthelp.com
2. Read "Richest Man in Babylon"

I pay myself 10% of any money I receive. This is money going towards my future. It's my money, I earned it, and I finally have something to show for it. Right now it's in an airline's credit union savings account, making interest at the rate of inflation. That's a little bit better than the sock under the mattress. It doesn't matter if I find a nickel on the sidewalk or get a check from working, 10% goes to myself. No pensions, social security, or poor folks checks required for me when I retire.

I pay my previous spending, debts, with 20% of whatever I receive. That's all they get, 20%. I didn't have to listen to them whine, complain, groan, and moan about only getting 20% of my income -- I ceased all creditors. That was 6 years ago when I had no income and little possibility of getting one. The credit card numbers doubled and tripled, one even claimed I owed 'em 4x the original amount. Now they're back to just the amount owed when I ceased 'em, claiming 50% of that amount would make 'em happy. In one year, they get deleted from my credit history. Two years ago they lost the right to pursue me in court due to the state's statue of limitations. Of course, the court battle is only fought if they think you have something to give up, like assets. The student loans go away in 20 years if I can't repay all of them, locked in with a fixed 3% interest rate.

Then 30% goes towards an emergency fund. I needed the fund last year. I'm almost set if I need it this year. When the fund is full, the rest will go into short and long-term savings and investments.

I live on 50% of the rest. I deal with roommates :uzi: , no social life, a car with 123,000 miles on it, and no IPOD or other toys.

But I'm not broke. I'm working for something. I'm no longer living paycheck-to-paycheck, unable to get ahead.

My income recently quadrupled. I paid myself a bonus (out of the 30%) and spent it on a toy -- still have 10% coming right to me to not spend on toys today.

Good luck!
Jedi Nein

So basically you are a thief that promises to pay and then welches.

You are no better than a common criminal.

 

[westwind]

When you retire the government will take 30%-40% of all money withdrawn from a 401k.

If you retire with $1,000,000 for example the government could take up to $400,000.

What makes you think that they wont increase what they take out of 401ks?

Your logic makes no sense.

Absolutely NOTHING makes me think that they won't also increase the take from 401ks in the same scenario. I never said they wouldn't. I AM however receiving the tax breaks NOW that the 401k provides and pumping up the 401k with the added money. Hence "the bird in the bush..." The Roth just makes too many assumptions on the future for my comfort. BTW, I am not in the withdrawal mode yet, but if I were, my taxes on it would be below your 30-40% numbers.:blush: We can't all be Rockefellers.
Again, I am not trying to dissuade ANYONE from the Roth. Hence also, YMMV

 

[kingairyahoo]

Anybody who thinks that investing in 401Ks and IRAs is the way to a comfortable retirement is dreaming. The mutual fund industry suckers people into believing all the hype and fails to perform. I would never put all my eggs in that basket. Don't listen to Suze Orman and the other self-professed gurus out there.

A portion of investments should certainly be in stocks, but don't count on them just like you now know not to count on pensions. The USA could easily have a Japanese style market meltdown and you could stand still in your investment accounts for 10 to 20 years.

Never give your money to someone else to invest for you. Always keep it in your name. That means to keep mutual funds and trading accounts in your name and not to invest in hair-brained get rich quick schemes.

The recent run-up in property prices makes investing in property a bit risky right now, but look to buy after the correction. Your primary residence is your single best investment. Once you have that look for a decent rental property. Your long term returns should certainly be higher than from the stock market.

P.S.

Marry a rich woman, the single best investment a man can make.

ok...hold up.

you are essentially poo-poo'ing the 401k and IRA route in favor of real estate???

while i can agree with utilizing real estate to supplement, im gonna need some elaborration on why you are the only one here that has essentially said anything against 401K's and IRA's

 

[psysicx]

And a Mutual Fund doesn't just invest in the stock market. There are other investment vehicles.

 

[bafanguy]

Lots of good advice/info here. But, the basic message is: you better be squirreling it away no matter where/how you do it...trust no one but yourself.

I looked for the quote I think is attributed to Albert Einstein but couldn't find it. I "think" it was something akin to "...the real miracle of mathematics is compound interest...".

Time is your friend...start now.

 

[psysicx]

The stock market and investments are a risk. But thats why we have money managers who spend there life watching it. All the rich people have money in bonds and stocks so that has to say something. There are things that are way low risk and ones that are insured. Just use a company that has a proven record. Even when the market crashed in 01 there were still lots of people who didn't loose everything.

 

[typhoonpilot]

The stock market and investments are a risk. But thats why we have money managers who spend there life watching it. All the rich people have money in bonds and stocks so that has to say something. There are things that are way low risk and ones that are insured. Just use a company that has a proven record. Even when the market crashed in 01 there were still lots of people who didn't loose everything.

Read what I said again. All I'm saying is that you aren't guaranteed to retire a millionaire if you invest in 401Ks and IRAs. You need to be doing more. Certainly have a portion of your investments in stocks and bonds, but don't make the mistake of thinking you will get an average of 8 - 10% per year on it for twenty years just because that is the average over the last 20 years. If you do that then you are makig the same mistake that those of us who thought we would have a pension made. Investment accounts can easily stand still for years on end. Thats all I'm saying.

TP

 

[BluDevAv8r]

If you are not investing in a Roth IRA then you are really screwing yourself.

While 401k monies grow tax defered, Roth 401k monies grow tax free.

Maxing out a 401k is great but if you are not investing in a Roth IRA you are pissing money away.

I will post more later today...but....

...How are you "pissing money away? Can you prove this statement? You are leaving out a lot of variables. Please post your assumptions and a few examples that back up your statements above since they are quite absolute. I'm not trying to be a d-ck here DangerKitty but you are making statements with absolute certainty but not backed up by any data or facts. Thanks.

-Neal

 

[smellthejeta]

I will post more later today...but....

...How are you "pissing money away? Can you prove this statement? You are leaving out a lot of variables. Please post your assumptions and a few examples that back up your statements above since they are quite absolute. I'm not trying to be a d-ck here DangerKitty but you are making statements with absolute certainty but not backed up by any data or facts. Thanks.

-Neal

I, too, agree that Dangerkitty is making statements that are absolute as well. The assumptions I believe he is making are that over the years, your income will incrase, as will the rate at which you are taxed. What the assumption is is that with a 401k, you put $1 in untaxed, get your match, watch it grow, and then tax it when you take it out. Presumaly, you will be in a higher tax bracket then you are now, which thoretically means your saving a little to spend a lot. With a Roth IRA, you pay the tax now when your tax rate is lower, and then take it out for no gain when your tax rate is higher. I ran two comparisons with "real" numbers:

Your employer matches 100% of your contribution up to X%. Your investment grows at a rate of 8%. You currently are in the 15% bracket, and will be in the 50% bracket when you retire. You invest for 10 years. For simplicity sake, we will discuss the value of $1 invested now after 10 years.

401(k) within company match: Essentially $2 is put in at time of deposit, although you contributed only $1. After 10 years, the value of the investment is worth $4.45, and the value after it is taxed at 50% is $2.22.

401(k) outside company match: Only $1 is put in at time of deposit, After 10 years, the value of the investment is worth $2.22. After taxes, you will have $1.11.

Roth IRA: $1 is put in at time of deposit. Since it is after tax income, you are only depositing $0.85. After 10 years, the investment is worth $1.89. It is not taxed at withdrawl, so you get all of that $1.89.

Clearly, investing in your 401k to your company contribution is the winner -- you have more than double YOUR initial contribution. Once those limits are reached, it is clear that the Roth is the next best place to invest. Finally, the 401(k) outside of the company match is of little value.

 

[Dangerkitty]

I will post more later today...but....

...How are you "pissing money away? Can you prove this statement? You are leaving out a lot of variables. Please post your assumptions and a few examples that back up your statements above since they are quite absolute. I'm not trying to be a d-ck here DangerKitty but you are making statements with absolute certainty but not backed up by any data or facts. Thanks.

-Neal

Neal,

I would have PM'd you a little more detailed information but my ability to PM has been stripped as I have been deemed a threat to Neal and flightinfo.com

Smellthejeta basically stated what I was going to state. Here is the way I would do it:

1. Invest in the 401k up to the company match and nothing more.

2. Then max out the Roth IRA.

3. If anything is left over then invest in a traditional IRA.

401k's grow tax deferred. So you get the tax benefit NOW but have to pay Uncle Sam later. With a Roth you pay with after tax money but it grows tax free.

So lets say you retire with $1 million in a 401k and $1 million in a Roth and you are in the 30% tax bracket.

With the Roth you keep every last cent. With the 401k you owe uncle same $300,000 over the life of withdrawing the 401k.

The tax benefit you get now is not enough to make up the taxes you pay later in the 401k.

 

[PC800]

I, too, agree that Dangerkitty is making statements that are absolute as well.

He is, and he's wrong on a lot of them:

1. As noted earlier in the thread, he's confused about benefits provided by Long Term Care insurance as opposed to medical insurance.

2. He says everybody should have term life insurance in the amount of ten times their annual income. In reality, some people (single with no dependents) don't need life insurance at all, while others may need far more. It depends on who would be affected financially by your death, and what other assets you have.

3. He says you should pay off debt before investing in retirement funds. This is true ONLY if the after-tax cost of servicing the debt is higher than the after-tax earnings of money deposited in the retirement account. Credit card debt, absolutely pay it off first; student loan or other low interest debt, probably not.

4. He's stated repeatedly that federal taxes will take 30 to 40% of your income when you withdraw money from your retirement funds. That's highly unlikely for most of us-- the 33% tax bracket doesn't start (for a couple filing a joint return) until income tops $182,000. Even then, you'd only pay 33% on the amount of income OVER $182,000-- the rest would be taxed at lower rates. A more realistic example: a married couple filing a joint tax return, who don't itemize deductions, would pay approximately $15,000 (15%) in federal taxes on an income of $100,000.


To give credit where credit's due, he's not wrong about everything-- term insurance IS far better for most people than whole life or universal. And, his recommendation to max out the 401k to take full advantage of the company match, then maxing out a Roth IRA, is right on the money. But he's wrong about enough of the other stuff that I wouldn't rely on DangerKitty for insurance or financial advice.

 

[LarryinTN]

Hey DangerKitty... Are you 'better than you deserve'?

 

[Dangerkitty]

He is, and he's wrong on a lot of them:

1. As noted earlier in the thread, he's confused about benefits provided by Long Term Care insurance as opposed to medical insurance.

I have been selling LTC insurance for the past 4 years. I am appointed with all the big names in the industry. John Hancock, GE, Metlife, AFLAC, etc etc.
I have sold 100's of LTC policies. I think I know what I am talking about.

What are your insurance credentials?

2. He says everybody should have term life insurance in the amount of ten times their annual income. In reality, some people (single with no dependents) don't need life insurance at all, while others may need far more. It depends on who would be affected financially by your death, and what other assets you have.

Most of us here have families in which dependents are counting on us. If you intend to be single with no family for the rest of your life then go ahead and do not get any life insurance. I bet soon you are going to be telling me that single people dont need LTD insurance.

3. He says you should pay off debt before investing in retirement funds. This is true ONLY if the after-tax cost of servicing the debt is higher than the after-tax earnings of money deposited in the retirement account. Credit card debt, absolutely pay it off first; student loan or other low interest debt, probably not.

Debt is debt. I could care less (to a certain extent) what the interest rate it. Pay the debt off now and the then double up on retirement savings. Most people could have their debt paid off in under 2 years if they really kicked some tail and attacked the debt. That is what I am talking about.

4. He's stated repeatedly that federal taxes will take 30 to 40% of your income when you withdraw money from your retirement funds. That's highly unlikely for most of us-- the 33% tax bracket doesn't start (for a couple filing a joint return) until income tops $182,000. Even then, you'd only pay 33% on the amount of income OVER $182,000-- the rest would be taxed at lower rates. A more realistic example: a married couple filing a joint tax return, who don't itemize deductions, would pay approximately $15,000 (15%) in federal taxes on an income of $100,000.

I am sorry that you have set such low goals for yourself. Some of us have bigger goals and with a few years I will be in that very tax bracket. I might as well max out my Roth while I can invest in one.

To give credit where credit's due, he's not wrong about everything-- term insurance IS far better for most people than whole life or universal. And, his recommendation to max out the 401k to take full advantage of the company match, then maxing out a Roth IRA, is right on the money. But he's wrong about enough of the other stuff that I wouldn't rely on DangerKitty for insurance or financial advice.

We can argue all day long about different financial strategies but it still boggles my mind that you think I dont know what I am talking about when it comes to insurance. So again I will ask you. What have I stated that is wrong in regards to LTC and what are your insurance credentials?

 

[Dangerkitty]

Hey DangerKitty... Are you 'better than you deserve'?

I will be very honest and state that Dave Ramsey has had a very big impact on my Insurance Business as well as giving me the motivation to be a CFP. His message is true and packed with common sense. Something that you do not see very much with other financial talkin heads.

 

[PC800]

Presumaly, you will be in a higher tax bracket then you are now,

Smellthejeta, there are a couple of flaws in your analysis:

1. Most people have a lower income after they retire than they did when they working-- which means they're in a lower tax bracket after retirement, not a higher one. That's supposed to be one of the advantages of a regular IRA or 401k-- rather than pay taxes on your contributions at your present higher rate, you pay taxes on it after retirement, when you're in a lower bracket.

2. If you're in, say, the 28% tax bracket, that does not mean that your entire income is taxed at 28%. For a joint return, in rough numbers, the first $15,000 is taxed at 10%, the next $45,000 at 15%, the next $60,000 at 25%; only amounts over $120,000 (and less than $182,000) would be taxed at 28%. The net effect of this is that the percentage of your gross income that goes to federal taxes is substantially less than your tax bracket. A retirement income of $100,000 would place the taxpayer in the 25% tax bracket-- but their federal tax would be around $15,000, or 15% of their gross income.

3. Tax brackets only go to 35%, not 50%-- and you'd have to have a annual retirement income of over $325,000 to reach that bracket. If you're going to make your living in the aviation industry, it ain't likely you're going to be retiring on $300k+ per year. <g>

 

[Dangerkitty]

Uh, no, it's not.

I have a very comprehensive Blue Cross/Blue Shield medical policy, and it provides very limited coverage skilled nursing care coverage-- and only for those enrollees that have Medicare Part A. Their benefits brochure specifically states, "Note: If you do not have Medicare Part A, we do not provide benefits for skilled nursing facility care."

OTOH, skilled nursing care coverage is a benefit of my John Hancock LTC policy. This is quite common in LTC policies, and often required by state law. For instance, for LTC policies sold in the State of New York, "The home care benefit must cover skilled nursing care, home health care, personal care and assisted living care."

You are so confused about this that you are falling into a trap that many seniors do. I used to work for BCBS in Texas and dealt with this all the time when I sold Medicare Supplements. What you just quoted is why seniors think that they have Long Term Care Coverage when they dont.

Let's break it down to the basics:

Skilled Nursing Care is care given to someone when the Condition WILL get better. Rehabbing of a knee replacement for example. LTC DOES NOT COVER THIS!!!

Un-skilled nursing care is care given to someone when the condition will never get better. Someone has Alzheimer's is always going to have Alzheimers and the condition will never improve. This is what LTC insurance covers. When someone has a condition where they are going to need care 24/7/365 LTC is what pays for it.

 

[Dangerkitty]

And by the way in the quote you made above you are actually proving my point but since you dont know what you are talking about in the first place you probably do not realize that.

Medicare has NOTHING and I mean NOTHING to do with unskilled Long Term care facilities, home health care or anything similar to that. When they state skilled nursing facilities they are referring to REHAB!

 

[PC800]

What have I stated that is wrong in regards to LTC and what are your insurance credentials?

You have stated that LTC insurance does NOT cover skilled nursing care, and that medical insurance does. In fact, the opposite is true.

I have no insurance "credentials"; I'm just a savvy consumer.


Your lack of expertise in financial matters is readily apparent, not only from your apparent misunderstanding of tax brackets, but from the following quote from your last post:

"Debt is debt. I could care less (to a certain extent) what the interest rate it."

If you hope to someday achieve your financial goals, you need to start caring about what the interest rate is. I don't like debt either, and have none, except for a small mortgage at 4.875%. I have the money to pay off that mortgage, but I don't-- because paying off low interest debt with money that is earning at a higher rate is financially stupid.

And before you ask, no, I don't have any financial planning credentials. However, I did manage to reach my financial goals and retire, very comfortably, 9 years ago-- at the age of 45.

 

[Dangerkitty]

You have stated that LTC insurance does NOT cover skilled nursing care, and that medical insurance does. In fact, the opposite is true.

I have no insurance "credentials"; I'm just a savvy consumer.


Your lack of expertise in financial matters is readily apparent, not only from your apparent misunderstanding of tax brackets, but from the following quote from your last post:

"Debt is debt. I could care less (to a certain extent) what the interest rate it."

If you hope to someday achieve your financial goals, you need to start caring about what the interest rate is. I don't like debt either, and have none, except for a small mortgage at 4.875%. I have the money to pay off that mortgage, but I don't-- because paying off low interest debt with money that is earning at a higher rate is financially stupid.

And before you ask, no, I don't have any financial planning credentials. However, I did manage to reach my financial goals and retire, very comfortably, 9 years ago-- at the age of 45.

PC800,

Again you are just plain stupid. You are like the little old man I use to have to try to explain the way Medicare and LTC Insurance worked. He heard from a friend who heard from a friend and thought he knew how it worked. Well 9 times out of 10 he was clueless.

For some reason you seem to think you know what a skilled nursing facility is when you couldn't be further from the truth.

Why dont you do a search and educate yourself because all you do here is state I am wrong but yet you can't back up your points.

Once again Skilled Nursing Care is rehab, which is covered under Medicare and or Medical Insurance. LTC only covers unskilled nursing facilities.
Why you can't get that through your thick head is beyond me.