Author Topic: Best way to increase retirement savings  (Read 2959 times)

mashrach

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Best way to increase retirement savings
« on: March 28, 2016, 03:37:39 PM »
Hi all,
I currently contribute 8% of my income to my company 401K plan, my company matches this 100%. I am taking full advantage of the match so anything more I contribute will not be matched. I'm 41  years old and playing catchup with my retirement savings. I'm divorced and throughout my marriage I wasn't able to contribute much (or was able but too stupid) and I lost some of my savings in my divorce. So..here I am. I have two sons and one of them will start college in 5 years but I am going to focus on getting my retirement savings up rather than saving for college.
My question is what is the best way for me to increase my retirement savings. If I look at my 401K account the 5 year and 10 year returns are around 4.7%. The expense ratio is 0.4%. If I look at something like the Vanguard target retirement 2040 fund the 5 year return is 8.1% and the expense ratio is 0.16%. So better return and lower expense.  With my AGI I do still qualify for a Roth IRA but I make a good salary > $110K and so I'm probably paying higher taxes than I will when I withdraw. Another option is to just make non-deductible IRA contributions but of course that doesn't help lower my taxes now. The other option I would consider is just investing post-tax in a taxable Vanguard index fund as is often recommended here.
Unfortunately I'm a bit late to the game and I will not be FI anytime within the next decade...but I want to put myself and my kids in the best possible position. Any advice? Should I just make sure I have a sufficient emergency fund and then fully max my 401K contributions? (I'm not there yet), or should I leave my 401K as is and chose one of the other options that don't lower my tax bill but have potentially higher returns?
Many thanks :)

Uturn

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Re: Best way to increase retirement savings
« Reply #1 on: March 28, 2016, 03:57:02 PM »
Best way to increase?  Don't spend other places and really look at your expenses.  In the last 2 months I have refi'ed the house, changed auto insurance provider, and negotiated lower home insurance rate.  $1200/mo savings without changing a bit of lifestyle. 

Best place to put retirement savings?  Dunno.  Still sifting through all that's out there, but in the mean time it's parked in Spartan 500.  I'm sure the investing gurus will be along shortly with more advice.

The main thing is you now accept that your finances can be better.  Don't beat yourself up over yesterday, do do stupid today, and tomorrow will take care of itself. 

Trip

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Re: Best way to increase retirement savings
« Reply #2 on: March 28, 2016, 04:01:15 PM »
Do you have any debts? Do you have an emergency fund? Do you have access to an HSA?

Start lower your expenses and save the difference.

The typical order that gets promoted for debt/investment accounts is something along the lines of the below.

1. Create an emergency fund with 3-6 months of expenses
2. Pay off any debts > 4% over the discount rate
3. Contribute to get the full employer match to your 401K
4. Max out your HSA if you have access
5. Max out your IRA (In your case, you'll likely want to go for a Traditional IRA)
6. Max out your 401K
7. Pay off any remaining debts like your mortgage
8. Contribute to taxable accounts

If you get your savings rate high enough, then maybe you can retire within the next decade! http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

mashrach

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Re: Best way to increase retirement savings
« Reply #3 on: March 28, 2016, 04:25:04 PM »
Thanks for the replies. Uturn, $1200/mo savings is incredible! nice job, and Larry congrats on having your stuff together at such a young age.
I currently have an emergency fund of around 4 months of expenses. I want to get that up to 6 months. And I agree on lowering expenses, I just did a mortgage refinance, I'll be changing cell phone providers which will save me about $50 a month, I already live a fairly thrifty life and always pack my lunch, never buy coffee, don't buy myself many clothes, etc... There isn't too much fat to be trimmed...getting rid of cable is an option but not my favorite one since my boys and I do enjoy watching sports together. I have a pretty basic cable TV package.

My debt is as follows:
$2500 credit card debt at 0% which I'm paying off next paycheck just because I hate having this debt.
~$13K in 401K loan that I took out during the divorce. Currently paying myself back with interest slowly but this is around $500/month
Car loan, 2% interest. First car loan I've had in 15 years, I hate having one but I know that I will drive this car into the ground after it's paid off.

I don't have access to a HSA. Larry, you mention maxing out the IRA before maxing out the 401K, so you would recommend the non-deductible Traditional IRA? I have access to a company 401K and make too much to qualify for IRA contributions to be deductible.

It is a huge goal of mine right now to get that savings rate up. I appreciate the advice.
« Last Edit: March 28, 2016, 04:27:59 PM by mashrach »

Gin1984

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Re: Best way to increase retirement savings
« Reply #4 on: March 28, 2016, 04:27:02 PM »
If you can't deduct the IRA, put the money in your 401k. 

Trip

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Re: Best way to increase retirement savings
« Reply #5 on: March 28, 2016, 04:41:31 PM »
I didn't realize that the IRA was non-deductible. If that is the case, then I agree with Gin1984. Max the 401K first.

I would have to look into whether there are still benefits to contributing to an IRA if it is non-deductible. Based on a quick Google search on that topic, it looks like there may be a few situations when you would still contribute to the non-deductible after the 401K, but before a taxable account.  Here are a couple of links that may help once you get to this point.
https://www.bogleheads.org/wiki/Non-deductible_traditional_IRA
http://www.fool.com/retirement/iras/2015/02/22/nondeductible-iras-worth-the-hassle.aspx

robartsd

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Re: Best way to increase retirement savings
« Reply #6 on: March 28, 2016, 05:36:49 PM »
It sounds more like you're disappointed with performance of your 401k investments than that you don't know how to increase savings. Have you explored all the options for your 401k? Perhaps you could petition for better options.

mashrach

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Re: Best way to increase retirement savings
« Reply #7 on: March 28, 2016, 07:43:09 PM »
Yeah the sub 5% returns seem low but there aren't many great options available to me. That's one of the reasons I'm trying to figure out what to do. I attached a screenshot of my options, maybe a better options would be the large company us stock fund. I just went with the fund targeted toward my age and retirement target.