Monday, February 16, 2009

Roth's and Retirement

In the comments section, Shopgirl Chicago asked a great question:

"...We have opened up a roth IRA what else should we be doing? (besides depending on our pension??)"

Retirement is a very important question for everybody, no one wants to end up on public assistance or as a burden to friends and family. Every retirement plan has it's positives and negatives, and how long until you retire, what kind of lifestyle you want to live when you retire, and what you're willing to live on now are all factors that play a part. Shopgirl: you already have a pension (as do most of you, social security...which may or may not be around in the future is a pension) which will pay you a certain percentage of your salary based on years of service and income. It's a great idea to start something else as well and a popular choice is a Roth IRA.

First of all, some notes about IRA's. There are a few types of IRA's out there but the two most popular are Roth and traditional. The main differences are tax liability and dispursement rules. Unlike a traditional IRA, Roth IRA contributions are not tax deductible, but the withdrawals are making them a tremendous option to grow your money in a tax free environment (one of the great enemies of retirement are taxes). There are income limits to contributing to a Roth, if you are married and filing jointly your not able to contribute to a Roth if your income is above $169,000 (you can only partially contribute if your income is between $159,000 and $169,000). If you are under the age of 50 (by the way, the magic number to take your money out without penalty is 59.5) you can contribute $5000 a year per person, if you are over 50 you can contribute $6000 a year. If you're married, you can each contribute this amount. Anyone can open and contribute to a traditional IRA (as opposed to the Roth which has the income limits) but you only realize certain tax benefits from a traditional IRA if you are below a certain income level. Another nice benefit of an IRA is that you can take money out to pay for education expenses for you, your spouse, or dependants. This makes them a better option, in my opinion, than the state sponsored education accounts that MUST be used for education or else they incur large penalties.

Other people might be eligible for a 401k (or similar product such as a 403b). Before doing anything else, I would at least be contributing the minimum amount that your company will match. Companies will usually pay a certain percentage out of their own pockets. For instance, if you contribute 25 cents, they will contribute 75 cents so every dollar in your account is 3/4 covered by a business. This benefit is starting to disappear in the current tough economic situation but many companies still offer some sort of match.

If you are paying in to your pension, AND fully contributing to an individual retirement account you are way ahead of 95% of the people out there. If you still have extra money to invest, it might be time to do something more unconventional. Investing in real estate, commodities such as gold or silver, individual stocks, mutual funds or a new product called a ETF might be worth exploring. One thing that's important to remember is that outside of some of the government-recognized retirement funds there aren't a lot of tax advantages out there and you will be paying taxes on the gains you manage to generate during the year.

The simple fact is that most people aren't able to live, pay payroll taxes, pay in to a retirement account at work, fully fund an IRA account, AND still have plenty of extra money to throw around at other investments. It's important to live a life as well and do things you enjoy doing. Just as an example, if I had an extra:

$1,000 to invest right now - I'd take a road trip to somewhere interesting

$10,000 to invest right now - I'd buy individual stocks in a strong company that is currently trading at a historically low level, something like General Electric

$50,000 to invest right now - I'd pay off my car loan and do some remodeling to my house (with interest rates at a very low level, it's not a bad idea to do this now anyway as money is fairly cheap.)

$100,000 to invest right now - This is tough because you're starting to get in to numbers that are life changing for people, but I'd probably go in to several mutual funds both in emerging markets and something that will take advantage of the current economic situation like precious metals or foreign currency.

$1,000,000 to invest right now - I'd take a bunch of friends and family on a great trip to Maui and endow a scholarship at a college.

It's important to balance saving for retirement with living a life that is fulfilling to you.

Excellent question Shopgirl. What ways are other people saving for retirement?

Friday, February 13, 2009

On Investing

Since no one was asking for it, I've decided to start blogging about investing. This will include both general information about economics, finance, etc. and my personal investing choices and stock discussion. I need to add a disclaimer and that is if you decide to actually follow anything I say, you should speak with a financial advisor before actually making any moves, I really can't be held responsible for any losses you might incur based on my amateurish advice. I'd also like to point out that my opinions will be tainted by my experiences and the people I listened to growing up and in school. This list includes, but is not limited to, my father, Warren Buffet, and Benjamin Graham.

One of my big pet peeves of the American educational system is the general lack of finance/accounting/money classes in the junior high, high schools, and colleges (for non business majors). So many people enter the world without even rudimentary knowledge of economics and I think it's to the detriment of us all.

If you are new to the stock market, a good place to start might be an investing simulator. Something similar to Investopedia's Stock Market Game (link: ) is a great place to practice and get a beginning understanding of the American equities market.

Look at this space for more info soon!

Tuesday, January 6, 2009

Sunday, January 4, 2009

What Now??!?!!?

That's the big question that everyone wanted to know over the Christmas holiday. Coming on the heels of my 30th birthday and completing my MBA (finally! a lot of people go to college for seven years, they're called doctors) friends and family, doubters and pouters, and well wishers of all types want to know what my next move is. I usually have a clever answer at the ready "lottery winner!" or something similar (okay, I guess it isn't that clever) but I really don't know. I've discovered some interesting things over the last few years. This will probably ramble but I have a few thoughts on careers that I wanted to put down. I was always raised that you can be anything you want to be, and that's true to a point..but that line of thinking doesn't take in to account the finite resources that people have avaible. Specifically: time and money. Given unlimited supplies of both, you certainly could be anything you want to be. While I am aware of people that have essentially unlimited amounts of money, I don't know anybody in the world that has unlimited time, so for people like me that have too many interests, you can be anything I suppose, but you can't be everything. The education, training, job hunting, job achieving, skill development, promotions, and eventual retirement that a normal career arc takes is a really resource-intensive process. If you want to be in advertising, it takes a long time to "make it" in that career, if you decide halfway through that you want to be a nurse, it takes several years of education to switch, but then if you decide you want to be a computer programmer, it takes even more time. There just isn't the time in a lifetime to be everything I want to be.
Narrowing my interests has always been a skill that I struggle with, with that in mind I decided to sit down and write down what I want to do....just stream-of-consciousness style...I wrote it on paper several days ago and surprised myself with where my mind took me. Here is what my list says exactly:
1. FBI Agent
2. Stay at current job and try to get a college teaching position
3. high school teacher
4. homeland security
5. something in government
6. broker
7. finance job in corporate america
8. author
You can see there is a wide range of choices in there. I just wrote things down as they came to me and I've had a couple of days to think things over. Each job has it's positive and negatives, and some of them are not mutually exclusive...I could teach in college (community colllege or even some evening program) while doing another job as well. I could always write something while working practically any job. What I know is I want to do something that I'm passionate about, and I want to do something where I feel like I'm making a difference. I definately have something mind, a real direction I'm leaning...I'll keep everyone updated if there is any news.