Author Topic: New here: Where to put money?  (Read 2755 times)

jfer_rose

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New here: Where to put money?
« on: April 30, 2013, 10:10:43 AM »
Hello,
I'm new here-- discovered this site from the Washington Post article and I'm very interested in this. I'm 35 and am on great track for a traditional, rather than early retirement. I don't have any debt aside from my mortgage and I am living well below my means. My question is, if want to move my retirement age up, how do you best allocate your money? Is there a rule of thumb for how much to put into employer-sponsored retirement plans, Roth IRA's, etc. versus how much to put into a regular Index fund investment account that is not specifically a traditional retirement account? With the age rules for traditional retirement accounts, I would need to know that money will be where I need it to be when I need it. Hopefully this question makes sense!

Thanks,

jfer_rose

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Re: New here: Where to put money?
« Reply #1 on: April 30, 2013, 10:57:26 AM »
My employer puts 5% of my salary into a retirement account on my behalf (no matching required and I am already vested).
I'm putting about 12% of my salary into my 401(a) and about 3% into a Roth IRA. That means about 20% of my income is going toward retirement accounts.

Further, I am currently saving another 18% of my salary. Just last month I got my emergency fund where I want it to be (it's in an online savings account but I have recently been considering doing a CD ladder so the funds could be relatively accessible in case of an emergency but so that they will also earn higher interest). Moving forward my question is where to put my savings? Do I max out the above retirement accounts first, or do I open a non-retirement investment account so I don't have to worry about penalties for withdrawing money before I reach traditional retirement age? I'll also be trying to work toward at least 50% of my salary going toward savings...

jfer_rose

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Re: New here: Where to put money?
« Reply #2 on: April 30, 2013, 12:39:36 PM »
I appreciate the responses so far, although I think my original question was too confusing. I'm really just trying to decide what percentage of my saved money should go into retirement accounts (which by law I cannot access without penalty until I reach a certain age) and what percentage of my saved money should go into non-retirement investment accounts?

matchewed

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Re: New here: Where to put money?
« Reply #3 on: April 30, 2013, 01:02:42 PM »
jfer - The best advice I've seen is just keep saving. 401k to match, max a Roth, and then if possible then go back and max the 401k. That last one is pretty dependent on a number of things.

Some of those things are answered by taking the following steps.
1. Figure out what FI will be like for you. What will your life be like in the 10-15 years when you may choose to leave the workforce.

That question will lead you to #2. How much will that lifestyle cost?

Once you have a number expressed in both annual costs and a lump sum (costs x 25 [or 33 for a more conservative take]) you can start thinking about how that will be funded.

That funding will generally take the form of investment returns, rental income, or business income. What you seem to be leaning towards is the investment side. And you seem to be concerned with how to access money in your retirement accounts prior to age 59.5.

This can be done in a few ways. Look up 72(t) for rules on early withdrawals, and you can do a search for Roth pipeline (do the search either here or on the web). There is no guarantee that either of these options will be there in the future. But then again the future is never a guarantee for anything. :)

So that remaining money after you've gotten your match and the Roth is fully funded can either go back to your 401k for fully funding, into a standard investment vehicle, or savings towards some other strategy like building businesses, buying businesses, buying properties for rent...etc.
« Last Edit: April 30, 2013, 01:04:58 PM by matchewed »

RewardTraveler

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Re: New here: Where to put money?
« Reply #4 on: April 30, 2013, 01:04:37 PM »
At the end of the day the pre/post-tax allocation is pretty far down the list on areas that will impact when you can retire.  At 35 and saving 38% of your pay you're looking at retiring in 22-25 years (http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/), which means you'll retire around the time you hit 60.  As long as you have a few years of savings outside of retirement accounts you'll be ok.  Worst case scenario if you have too much in retirement accounts, you can always access retirement savings, without penalty, before retirement age if you take equal distributions, a 72(t) early distribution.

If you really want to optimize your mix, though, you would need to map out your expected cash flows through retirement to see what is your optimal mix.

jfer_rose

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Re: New here: Where to put money?
« Reply #5 on: April 30, 2013, 01:18:01 PM »
RewardTraveler and matchewed-- thank you. These responses are very helpful!!

I'm hoping to amp up my savings rate so I can move up my retirement date, and this is very helpful!