Trend

To answer Will's original question... No.

I'm not going to say that Roth's, IRA's or any other form of investment is a bad idea. What I can speak to is personal experience.

a. 401k plan - Had one and it was an utter disaster.

b. IRA's 9 Roth or otherwise - I do not want my money tied up under threat of penalty until I'm "60'ish" .. I may not live to see that age. I prefer to be liquid.

c. Stocks / Mutual Funds etc. - Yes... I have these and continue to invest regularly.

d. Gold and Silver - Yes. Invest regularly in small ( 1-10oz) gold and silver bars.

e. Cash - Yes. I hoard it... Dollars and Euros.

f. Property - Yes ... and I wish I hadn't. Will not do it again.

Lastly, In the past two years I have had the misfortune of having two close relatives pass away. One left a generational skipping trust .. the other left cash .. literally cash. I paid 386k in taxes on the trust... $0 on the cash... Bottom line.. at least for me I'll be leaving my family cash and other liquid assets.

will76

Yes at my peak I was making 30K a week and it felt like it would last forever. These days I still do "good" but not nearly as much as I use to make. I was also building houses and doing well with that about 5 years ago. I started off slow, built 1 house, made 20K so built two, did well, built 4, did well built 10, about the time I had 12+ house going is when the market crashed and I got left holding about 2 million in construction loans, having to give houses away for thousands less than cost just to unload them. Many other builders went bankrupt. You go from thinking you lil Donald Trump one minute to a humbled person the next. Can't ever let your ego or ambition get away from you, don't ever think you are indestructible when you make financial decisions.

I've learned the hard way on some things and on other things from seeing other people make mistakes.

I always change too with my online business, when one traffic source dies you fire a new one up, always trying to stay ahead of the competition, but I can't guarantee that at some point in the future I will fail all together. I just don't know for sure 100%. I don't want to look back in 20 years and say fuck where did it all go. I wish i would have put some of it away. You say you doing better in mainstream (online), but there is no guarantees that whatever you are doing there now will last and that you will find something new to replace that.

It's good to take the money you are making and spread it out. Put back % into your business to make more money, a % into another business investment something different so you can diversify, a % for retirement, a % for normal living expenses, and a small % for having fun. The problem with our industry is that a lot of people put the vast majority of what they made into the "having fun" category and blew the money. In your case it sounds like you want to pump back in 100% to your business. Spread it around some, diversify yourself.

To answer your question if I am a financial planner. I work with one who is brilliant and has helped me a lot of over the years. I just got licensed to be able to sell health, life, disability, and annuities. I am working on a web site that will have a lot of help full information on it. I will finish it sooner or later and will offer my services to help anyone here, if they want it. Maybe I will become the financial adviser for the adult industry god knows most people need it and it is better than what a lot of these people are doing right now. I might not know every detail to every plan out there but I understand the logic and general concepts and I have the support system in place to find out what I don't know. I feel confident being able to help anyone with any type of situation they may be in. I also set up a lot of this for myself about 8 years ago.

It's great you don't blow the money you make, but I am sure you don't want to work the rest of your life either. Even if you live a modest lifestyle I am sure you would rather be doing anything instead of working when you are 60,70,80 years old.

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fuzebox

This is an excellent point. I'll definitely get something going the next time I'm in a real country.

will76

NP, glad I could help even if it was just pointing something out to make you think. When we making bank we all feel like we are on the top of the world, but unfortunetly, it is a lot harder to stay on top than it is getting on top.

The internet industry, and world in general is so volatile furtunes were made and then lost with the dot com bubble pratically over night. The adult industry was doing much better 5-10 years ago, look around a lot of people have crashed and burned since then, who never imagined the money would ever stop coming in... and in just a couple years time that is exactly what happened to a lot of people here. Look at real-estate, the housing market was booming then busted in the matter of a year or so and fortunes were lost. It happens a lot. Some people take big chunks of money they made and go invest in stuff like bars and restaurants and blow 100K's and then their main source of income dries up so they blew their savings and don't have a lot of new money coming in any more.

Trying to navigate through the ups and downs is hard as hell. Just don't lose sight when you are up and think you are fixed in that position for the next 20-30 years. Not saying you can't stay on top and continue to grow you empire without set backs, but chances are you better put plan B in place with a small portion of the money you making while its pouring in, just incase your income does start go down in the future.

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will76

As I mentioned previously, I am not a big fan of a 401K with the exception of matching what your employee will contribute, got to take the free money. However you can roll your 401K plan into something else that you can controll. Also, like any retirement investment, its long term. If it goes down, just let it go, over time it will come back up. You only lose when you take it out. So if are 30 years old for example, don't worry that the market was down the last couple years, over time, it would rebound, and you have plenty of time for that to happen. Just roll it over to something else that you can control.

The point of all retirement plans is not to be taken out until age 59 1/2. Unless you know when you are going to die, you better plan for it just incase. If not, it would suck to be 65 and having to work because your business failed and you didn't have anything saved for retirement because you thought you might die before 60

Investing in Stocks, like day trading, you might as well go gamble at the casino. Mutual funds are risky but at least they are much better diversified than individual stocks, and for retirement purposes as long as you use them over long period of times you should be ok.

I don't understand why anyone would want to stock pile cash, that makes you nothing. You actualy losing money because of inflation. There are no guarantees with gold and silver either. Nothing wrong with spreading it all around, having a little gold, playing with a few bucks in the stock market, keeping some cash on hand, that is great, but you should have an anchor retirement plan in place building on compounding interest. Compounding interest is one of the greatest wonders of the world. Get your money in secured investments, with fixed or guaranteed minimums and watch the power of compounded interest take over, in your favor.

No guarantees with real estate, unfortunetly it has bad years too. Fixed / guaranteed retirement plans are the only things you can bank on. Put your money in and your are done. Just leave it alone and forget about it till the time comes to take it out way down the road. done.

another problem with being all liquid is we tend to spend what it is easy to get our hands on. Also talking to a good estate planner there are several ways to avoid lots of taxes and other things you can do like have a life insurance policy with the death benefit used to pay any estate taxes. Also life insurance death benefits are not taxable and there are ways to build cash values with those that can be used later in life to live off of or leave to beneficiaries.

There are so many things you can do. Talk to a compotent financial planner and explain your situation to them and let someone who knows what they are doing help you. Don't use some bad experiences doing something you were either ill advised on or because you didn't know better cause you to make worst decissions for yourself that will be even more harmfull to you in the future.

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Farang

Retirement... yeah, right

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Trend

One of the things I have always respected about you is your willingness to take the time to respond thoughtfully. That doesn't mean I always agree with you and on this point I have to respectfully disagree. Not because your advice is poor but rather because I have lived and learned.

Now in my late 40's, and based upon rejecting the advice of financial planners ( After trying it ) , I have businesses, property, cash, stock, mutual funds, and precious metals. Enough to comfortably retire, maintain my lifestyle and leave my children a nicely funded account. And that's all I am personally after.

pocketkangaroo

Same here (I think). I probably should focus more on the details but I put all my money into one of those Fidelity 2045 funds. Seems pretty diverse and in the stuff that someone who is retiring in 35 years needs. I probably should be putting more into it every year but also think that re-investing money into sites/projects now has a better ROI.

Penthouse Tony

will76 I think you are underestimating 401ks. Not only do they reduce your current taxable income but the investment can compound tax free. While I agree typically you don't have the best choices and the fees are a little bit higher than you would get investing on your own in an IRA or taxable account the benefits still outweigh the costs.

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CPimp

I'm 23 and dont have anything as far as retirement investment goes, but I have to say this was an amazingly excellent read and I will be looking into them Roth IRA accounts... even if all I can do is a hundred bucks a month right now, by the time I am 68 I have a half a mil saved.

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bDok

sep, roth ira, and a 403b. Got some of my own investing going.. etfs, stocks.

Need to really put more money away though. Haven't invested as much into these areas the past 2 years because of the hit i took in the past year. Building back to things though which is promising.

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will76

401K plans are great. I wish I had one.... BUT only for the free match part. I would max out the free match as much as possible. You can't beat free money. But beyond the free money match, you would be much better off putting your money into something other than your 401K plan. I'll explain why.

First of all, 401K plans do no grow tax "FREE". They grow Tax Deferred. There is a big difference between the two which I will explain in more detail.

Here is a good break down of what plans / products you should be investing your retirement money into.

1. Free Money
2. Tax Free Money
3. Tax Deferred Money
4. Taxable Money

Free money is stuff like profit sharing or 401K matching. If you have a 401K and an employer who will match a certain amount, the first thing you want to do is max that out. Take the free money.
Means = You get free money.

Tax Free Money: There is 3 options for tax free money: Municipal Bonds, Roth IRA, and Permanent life insurance. Bonds, they barely beat inflation and are not a good choice because the return is so low. Roth IRA is great, it grows tax FREE, but there are limitiations on how much you can put in and if you can do it at all, depending on how much money you make. (currently I believe you can put in $5,500 / individual a year and if you make more than 150K a year you can't do one). Life insurance is an AWESOME option for so many reasons, but that is an entire different post for another time, as it is a lot of information to explain.
Means = You pay ZERO taxes on the gains.

Tax Deferred Money: All the qualified plans are tax deferred; 401K, SEPs, Traditional IRA, etc...
Means = You don't have to pay the taxes now but you will later when you take it out.

Taxable Money: This is stuff like CDs, Money Market Accounts, Checking Accounts, Savings Accounts, etc...
Means = You have to pay taxes on the gain each year for that year. If your CD made $100 in gains last year, you pay taxes on that now.

If your 401K offers a match, that would be #1 on the list. If it doesn't offer a match at all, or you already maxed it out, if you kept putting more money into your 401K plan you would be skipping #2 on the list and going straight to #3.

You would be best off taking the match, then putting the rest of the money into a Roth IRA. When you take money out of the 401K you pay 100% taxes on it. When you take money out of a Roth you pay ZERO taxes on it. You didn't take the tax deduction on a Roth when you put the money in so the principle is not taxable, and because Roths grow tax FREE the gains are not taxable, therefore the entire amount is 100% non taxable when you take it out. A Roth IRA taxes advantage of compounded intrest like all the other plans just with out being taxed to death at the end.

Paying Taxes now vs Taking a tax Deduction now. You mentioned one of the benefits of a 401K plan is the tax savings you get now. It works like that for any qualified plan not just 401K (with the exception of the ROTH IRA), you take the deduction now and pay the taxes later. It's now or later when it comes to the princple, the IRS will get their money.

IMO, unless you plan on retiring poor (kinda of an oxymoron there), you are very likely going to be in the same or a higher tax bracket 20,30,40 years from now than you are now. I would much rather NOT take the deduction now, and be able to get the money out tax free on the back end. When you think about our growing national debt, the possibility of national health care and where they will get the money from to pay that, potential new wars to pay for, its out of control. Taxes are going to go up, it's the govt's biggest source of revenue - income taxes. They HAVE to raise taxes in the future to try to pay for everything. There is a very good chance its going to cost you more in the long run on taxes taking it out, than what you saved putting it in. Not to mention that it is your retirement, the more of it you can actually get out, with less of it going to taxes when you take it out, the better off you will be.

Let me know if that makes sense and if I explained it well.

Note... there is such a thing as a Roth401K that combines the benefits of Roth IRAs with 401K plans. But I didn't think that was what you were explaing because your contribution is not tax deductible.

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Phoenix

i have been looking at buying companies like coca cola..johnson and johnson...for the dividend payments...and just rolling them into more stocks

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will76

I appreciate your reply.

Let me see if I can give you a little more to think about.

You can very likely take some time right now and put a dollar amount on your assets. You can go have your property appraised, look at your income on your business for last month (minus debts, etc....), you can go look up the current value of gold, check the current value on your stocks, etc... "current" being the common theme with everything. You have no idea how much money all of that will be worth in 15-20 years.

So problem 1 is that you don't know the value of what you will have when you go to retire. Or for that matter if you still own all of that stuff, sold some of it off, if your business is still profitable, etc. etc.

Problem 2 is you don't know how long you are going to live. It's one thing to not know how much money you will have at say age 65, but what if you live to be 80 or 85? Did you have enough money to continue to pay your bills without you having to go back out and getting a job. Ok if you managed to do this, now how much is left over for you to leave to your children?

You can't answer any of those questions because of the nature of the items you chose to use for retirmenet purposes. It leaves a lot of uncertainty. I wish you the best, but "good luck" is not exactly what you want to be hearing in the same sentence with retirement.

Personally, I look for secure, guaranteed investments so I know what I am getting myself into. You can put your money into an equity index annuity with a 7.2% min guarantee and a 12% max (cap) each year. It will double in value every 10 years (or better). GUARANTEED... as long as you don't break the 10 year contract. There is no guessing, no hoping, you put the money in and then forget about it, it's a done deal. No worrying about what will happen to you and your family's livily hood if the real estate market crashes, or the stability of your business comes into question, if gold goes down, etc...

Another good, secure option you have is permenant life insurance. Permenant life insurance is AWESOME it has both LIVING and Death benefits. Worried about how much money you will be leaving your children, keep paying your policy and when you die they get the death benefit, whatever you set it to be. On the flip side, lets say your way (cash, gold, property, business, stocks) kick ass and you end up leaving your kids MILLIONS, they very likely will have to come up with a lot in taxes. In this case the death benefit from life insurance could have been used to protect your estate by them using the death benefit to pay the taxes on the rest of your estate. You wouldn't want the IRS to take a big chunk if you end up leaving them a lot of assets. There are living benefits too, your permanent life insurance policy will build cash value, through the loan provision you can borrow money from your cash value without paying any taxes at all on it. You can use this if an emergency comes up, or you can take money out as needed when you retire - Tax FREE. When you die, the death benefit goes to your children - Tax FREE.

Doing it your way, it's a lot of pressure when it comes to making sure you have money left for your kids. Everything rides on you and your business, and your ability to pick the right stocks, and how well gold did for you, that you didn't spend all of the money on your living expenses before you died. Having a good permanent life insurance policy accomplishes so many things and takes that pressure off of you, you know its a done deal at the very worst your kids will be getting that death benefit (500K, 1M, 2M, etc.. whatever you decide it to be).

It sounds like you have worked with some people that either didn't do a good job or just lead you in the wrong dirrection. There are so many options out there, better options for you that are secure, giving you the ability to know what you will have in the future. However you decide is up to you ultimately, hopefully your previous experiences haven't done more harm by making you feel the entire logic is not for you, because of some bad experiences you have had.

Remember, one last thing. You can "comfortably retire" right NOW. Now is such an important word cause things can change over time. You are only in your mid 40s, by the way you have things set up you need to be 100% sure that you can retire in the FUTURE AND LIVE off of that money till you die.

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Penthouse Tony

I never said that 401ks are tax free. I said they compound tax free (which is also true of both types of IRAs). Sure there are taxes when you take the money out but this is because you never were taxed on the money to begin with. In theory you aren't touching this money until you are retired and your tax bracket is lower. In the meantime you are saving on years worth of taxes on your earnings while it compounds.

While a Roth IRA you don't have to pay taxes when you take the money out you do pay now. Meaning you can only invest post tax wages. Lets say you have $5000 of your salary you want to invest. In a 401k you'd be able to put $5k in and it starts working for you right away and it's $5k that you don't pay on taxes now to uncle sam. If you want to invest in a Roth IRA and lets say you pay uncle sam his 30%, then you are left with $3.5k to put in your Roth IRA.

401k
Initial Deposit: $5000
Annual Addition: $5000
Annual Interest Rate: 7%
Number of Years: 30
Final Balance: $510,365.21

Roth IRA
Initial Deposit: $3500
Annual Addition: $3500
Annual Interest Rate: 7%
Number of Years: 30
Final Balance: $357,255.64

You end up with a lot more when you put off the taxes until later.

I think for most people it's a question of do you think you will be in a higher tax bracket now or when you need the money. If you think you will be in a higher tax bracket later then pay the taxes now and then invest it in a Roth. If you think you'll are in a higher tax bracket now then pay the taxes later when you are in a smaller bracket.

I should also note that there are income limits to investing in IRAs. For sure some of the people reading this can't even invest in Roth IRAs.

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Why

<has a 401k and contributes more then once a month! I think anyone not doing so is crazy!

2012

when I die, I'm taking it with me

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xxweekxx

for those of you who hoard cash? where ya put it? under your mattress?lol

id like to stash away like 10k hard cash every month, not sure where to put it though, dont trust safety deposit boxes since the gov can just seize that whenever, etc

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xxweekxx

where did they leave the cash? buried? lol

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Varius

I say to each their own and I will not criticize anyone for investing a small portion of their earnings for their future (even if it may never come). While in the DR, I met the CFO for Maxim Bungalows and he says he follows a very simple rule; only invest 10% of what you make, no more and no less.

However, for those people (and they do exist) who suffer now to reap the rewards later (ie. don't enjoy life, only work and pinch every penny for later in life) - I consider those people fools. Live for today, since tomorrow might not come. Enjoy life!

On a personal note, I plan to be fully retired at around 30 once I have enough passive income streams to travel and do anything I want for the rest of my life. Obviously, being in Costa Rica and not sure where else in the world I may end up, I'm against the idea of putting any money into long-term investments. There seems to be a lot of global changes on the horizon the next 15-20 years, so I'd rather be as liquid as possible.

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Trend

Sort of.... 986k in a safe in their basement floor.

CYF

I'll hold onto that for you...

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quiet

i suppose i pretty much agree with this, with the following cavets: no children or any one else close to you that might need your support.

i can't see the point of wasting your life away and never enjoying any of it. i was guilty of it myself for a long time (well, around 11 years of my life), and i would never go back to that.

the choice between traveling the world, snowboarding untouched powder in the Andes... or working in an office, seems pretty obvious to me.

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Trend

As stated before, I have always appreciated your posts. Please do not take anything I say as a challenge to the information you are providing. For many this is sound advice but nothing should ever be applied universally, for every person.




Agree with you here I have no idea what my assets will be worth when I retire. However, with my home already paid off and my average taste for vehicles my expenses are far below the interest income from just my investments. Current research finds that on average, a retiree's total expenses decrease over time unless they choose to spend more.




Not knowing how long I will live is indeed a problem And precisely why I personally prefer to be liquid. As far as my children, we started trust funds for them when they were born. They are able to access them upon my death or once they turn 35 whichever happens first. ( I'm hoping they turn 35 first )


This is why I say be careful applying this type of information universally. From the SEC website:

What is an equity-indexed annuity?

An equity-indexed annuity is a special type of contract between you and an insurance company. During the accumulation period ? when you make either a lump sum payment or a series of payments ? the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.

Can you lose money buying an equity-indexed annuity?

You can lose money buying an equity-indexed annuity, especially if you need to cancel your annuity early. Even with a guarantee, you can still lose money if your guarantee is based on an amount that?s less than the full amount of your purchase payments. In many cases, it will take several years for an equity-index annuity?s minimum guarantee to ?break even.?

You also may have to pay a significant surrender charge and tax penalties if you cancel early. In addition, in some cases, insurance companies may not credit you with index-linked interest if you do not hold your contract to maturity.

And from the Financial Industry Regulatory Authority:

What is the Guaranteed Minimum Return?

The guaranteed minimum return for an EIA is typically 90% of the premium paid at a 3% annual interest rate. However, if you surrender your EIA early, you may have to pay a significant surrender charge and a 10% tax penalty that will reduce or eliminate any return.



How good is this guarantee?

Your guaranteed return is only as good as the insurance company that gives it. While it is not a common occurrence that a life insurance company is unable to meet its obligations, it happens.



Good advice here regarding permanent life insurance And yes taxes will need to be paid on property, stocks, business. But not on the cash and gold. ( Unless our children are far more gullible than we are )



Here is the bottom line for us... our plan if you will.

We wanted to have 60k/year for 30 years in cash / gold. ( 1.8mil ) Achieved this.

We wanted to have our home paid off - Achieved this.

We wanted to fund our children's trust fund to the level that we feel responsible for their future ( I believe they are more responsible for this than I am ) - Achieved this.

So in addition to this we still have our current income from our business's, our stock and mutual fund portfolio, and our other properties.

I'll definitely take your advice on the Life Insurance though


Thanks for a terrific post.. especially considering this is GFY

will76

Sagi, I know I have given you a hard time in the past but I am really trying to help you here, not argue with you or insult you. Hopefully you wont feel defensive to what I am saying and listen with an open mind knowing that I am being sincere. I enjoy talking about financial matters and really want to help clear up a few things for you, that will enable you to make the best financial decisions for yourself.

You mentioned that 401Ks and both types of IRAs "compound tax free ". This is not correct. 401K and traditional IRAs "compound" tax deferred. A Roth IRA "compounds" tax free. Compound is not really the term I would use. I would call it "gains". If you don't understand the benefits of a Roth IRA and how it gains money differently than a Traditional IRA and 401K then you can't understand which type of investments are most beneficial to you.

When an investment gains money Tax Free = you never pay taxes on the gain.
When an investment gains money Tax Deferred = you will pay taxes on it at the end, when you take it. There is a huge fundamental difference here. If you are investing money for long periods of time, the majority of total accumulation at the end will be from the gains. If something grew Tax FREE then all of the gains can come out without having to pay any taxes on it. If the gains grew just tax deferred than you have to pay taxes on all of the gains... which could cost you tens or even hundreds of thousands in taxes.

There are 2 main discussions (disagreements) that we are having. Your example is trying to roll it all up into 1 thing and what you are ending up with is trying to compare apples and oranges. Lets break down both parts, it will be easier to see this way.

1. Taking a tax deduction now and paying taxes later vs. No tax deduction now and taking the money out tax free later. For this discussion, it pertains to the principle (total amount of contributions) not the gains.

2. How the gains grow in a Roth IRA vs a tax qualified plan like a 401K, Traditional IRA, SEP,etc.

Let's take a look at your example again and actually finish it this time.

401k
Initial Deposit: $5000
Annual Addition: $5000
Annual Interest Rate: 7%
Number of Years: 30
Final Balance: $510,365.21
Money distributed @ 30% tax rate: $153,109.56
Total Cash in hand: $357,255.65

Roth IRA
Initial Deposit: $3500
Annual Addition: $3500
Annual Interest Rate: 7%
Number of Years: 30
Final Balance: $357,255.65
Money distributed @ 0% tax rate: $0
Total Cash in hand: $357,255.65

Basically, based on your example you put the money in while you were in a 30% (about) tax bracket into your 401K and you took the tax deduction now. If you were to take the money out while you are in the same tax bracket (30%) at retirement it would wash. You would NET the exact same amount money in both options because you pay ZERO taxes on all distributions from a Roth IRA.
You can't just stop your illustration on how much it has accumulated, you have to look at the whole picture. Obviously you are going to take contributions so you have to factor in the tax consequences as well. It's not how big the number is on paper, it is how much cash you put into your pocket.

You told me previously that you plan on making less money when you retire, therefore you would be in a lower tax bracket and it would be more beneficial to take the deduction now, while you are in a higher bracket. You really need to think this all the way through and take into account several factors. For this example lets assume you make $8,000 a month right now, how much did you plan on retiring on? $5,000 a month then?

1. You plan on retiring and using this money to live on 30 years from now. That is a long time, have you factored in inflation? Inflation grows on average a little more than 3% or so a year. So your $5,000 a month in 30 years is going to be worth about $2,500 in today's dollars. If you are use to living off of $8,000 a month now will you be able to live off of $2,500 a month at retirement?

2. Your expenses won't be that much less than they are now. Some exceptions MAY be if you are paying a mortgage now, but the house is paid off when you retire, or IF you have kids you are paying for now, you wont have those expenses later. However there will be new expenses associated with being old, the biggest being medication, health insurance increases, at some point home health care or assisted living etc... Some expenses MAY go away, but you will likely get new expenses. No matter what, most of your expenses now will still be the same expenses you need to pay in the future, you still need to pay the electric bill, pay car insurance, buy groceries, pay insurance and taxes on your house, buy clothes, make repairs, etc. etc.

3. When you think about how much money you live off of now you need to take into account that you spend much of your life working right now. You probably leave yourself little time to spend money now if you are working 40,50,60 hours a week. When you retire everyday will feel like a Saturday. You will have a lot more time on your hands, which unless you plan on sitting on the sofa 24/7, every day of the week, you will likely be spending more money than you do now since you will have a lot more time at retirement to do things. Doing more things = cost more money.

4. I can't stress this one enough, it's your retirement, your golden years... ENJOY IT! You deserve it. Why plan to retire broke? Travel, go buy that motor home, take your grand kids on vacations. Enjoy yourself on what ever hobbies you have. Go out to lunch/dinner everyday with your wife. Be active, do all the things you ever wanted to do but couldn't because you were so busy working.

Now why would you PLAN your retirement in a way that you will be making LESS money IN 30 YEARS from now, than you are making right now. Even if you planned on retiring with the same amount of money you make now, that is in reality only HALF of what you are making now. $8,000 a month 30 years from now due to inflation only has the value of what you can buy today for $4,000. Unless you want to spend the majority of your retired years on the sofa watching TV you better plan on retiring in 30 years from now with MORE money than you are making a year right now.

Let's assume you still say, I will live modest and not do much. I will save for retirement based on making less when I retire than I am making now. So that's the plan, BUT what happens if you go back to work after you retire because you need more money or because you choose to because you are bored of watching TV 24/7? Now you are generating income that will be added to your retirement distribution putting you in a higher tax bracket. What happens if you had passive income coming in for other investments you make over the next 30 years? that income plus your retirement distribution will put you in higher income brackets. What if you inherit money after you retire? In some cases this will push you into higher tax brackets. Hell you can win money at the casino and it could push you into high tax brackets. There is a lot that can happen. Chances are your 401K will not be 100% of all money you take in as income after retirement, even if you planed it that way. Therefore there is a really good chance you going to be taking money out at a higher tax bracket.

The next HUGE problem to what you are doing is trusting Uncle Sam with your money. Lets assume you do plan to retire broke, taking out less money in retirement then you are making now, so you THINK you will be in a lower tax bracket at retirement.

Going back to your example: (continued below)

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will76

- CONTINUED -

At age 65 your 401K will have a balance of $510,365.21 . The Roth would have a balance of $357,255.65 Now how much of your 401K is really yours? You CAN'T answer this question right now because the US GOVT hasn't decided that yet FOR YOU. A Large portion of that money is the government's money and the rest is yours. None of us know how much yet. However, ALL of the money in your Roth IRA is yours, the government owns NONE of it, they will never touch it. In the Roth you can start calculating RIGHT NOW how much you can take a month at retirement because you will know, exactly to the penny how much money you will have available because it is all yours.

What you are doing, is letting the US GOVT get you by the balls and decide your future. As I mentioned in the previous post, everything points to income tax brackets going up. So you might plan on taking less money out at retirement then you are making right now, but you still may be in the same tax bracket at retirement because tax brackets went up.

If what I said above about inflation, having more time on your hands, and wanting to enjoy yourself more when you retire by doing more things etc... causes you to decide to save enough at retirement that equals what you are making right now, then there is a good chance you will end out taking the money out in a higher tax bracket. We just don't know how bad it will be 30 years from now. That can't be a good feeling to know that 1, the govt owns a big chunk of your retirement and 2. you have no idea how much they own so you wont know till the very end how much you actually get. You have no control.

Comparing the GAINS in a 401K plan vs a Roth IRA. There is no comparison, hands down the Roth IRA is a much better way to invest your money. This is a black and white issue, print out what I am saying and go ask 100 financial planners they will all tell you the same thing I am telling you. Max out the match "free money" in the 401K plan (if your employer offers a match) then put the money into the next best option, something that grows tax Free. A Roth IRA, as I have explained grows tax free. You pay no taxes on the gains. In your 401K you pay taxes on the gains. The gains (not principle) is what most of the final amount is going to consist of. Why do you want to pay taxes on the gains (most of the money) when you don't have to. Remember both 401Ks and Roth IRAs are just plans. What ever PRODUCT you invest in, mutual funds for example, you can do that from inside the Roth IRA just like you can from inside your 401K. Actually you have a lot more freedom with the Roth IRA vs the options your employer decides for you with the 401K. So why pay taxes on all those gains when the government is willing to give you a pass on it. It's the only "free money" the government gives us with retirement. BTW, there are much better tax advantages with the Roth IRA if you die. If you have money left over in Roth IRA and you leave it to a child for example, is received tax free in most cases where as in most cases the 401K will be beat up with taxes when your child gets it. Also, while you are living you can take money out of your Roth IRA early with out penalty under several different circumstances where as with a 401K if you want to take it early (before 59 1/2) there are penalties.


BTW, you said not everyone can do a Roth IRA. That's really not true any more. Everyone can do a Traditional IRA and Traditional IRAs can be rolled over into Roth IRAs. I can't do a Roth IRA and have been doing traditional IRAs, I am rolling all of them over into a Roth IRA this year. It accomplishes the same thing.

I know that is a lot of text to read. Just read over it with an open mind and let me know if you understand what i am saying if it changes your views any?

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will76

I appreciate the replies and opportunity to discuss this back and forth with you. It's something I enjoy talking about and the more I do the more it helps me learn how different people do different things and their train of thought.



I think it is great to be liquid and diversified. Your plan probably wouldn't work for most people. Most people wouldn't have the self control to save away piles of cash without spending it. My concerns / suggestions is that you have nothing guaranteed in your portfolio of investments. Everything you are invested in is either variable or loses value. Gold, Stocks, Real-estate, mutual funds all can go up or down in value. Cash on the other hand goes down in value. You have to take into account inflation. If you take $100,000 and let it sit for 30 years, what do you have? $100,000 . But, in 30 years it can only buy about 1/2 of what it can buy at the time you put it away. There is nothing in your investment portfolio that takes advantage of compounding interest. Compounding interest is like the 8th wonder of world. If you took that same $100,000 and invested it into something secured and guaranteed that doubled every 10 years (grew on average of 7% a year) in 30 years it would be worth $800,000, which if you factored in inflation it would have a value of $400,000 opposed to $50,000 if the money just sat as cash and didn't earn any interest.

I wouldn't suggest someone put everything into their long term guaranteed retirement. I personally invest in other long and short term things as well. What you are doing obviously worked for you it sounds like you will be able to accomplish everything you plan on doing.



There are several different companies that offer products like annuities, and each company offers several different options depending on your needs. You can add lots of different riders and mix and match different options. As a blanket statement, all "guarantees" will have stipulations. You just need to have them explained to you and make sure that they fit what you are trying to accomplish.

The equity index annuity I mentioned is one I did for myself and the same one I recommend to family and friends. I can't explain what the rules are for every equity index annuity out there but for this particular one you will make 7.2% guaranteed each year based on a 10 year contract. You can make as much as 12% depending on how well the Index did. There are penalties if you break the contract before the 10 years is complete and you lose the guarantee. You don't lose your money when you lose the guarantee unless the market did really bad over that time, you end up with market value minus some penalties. Like the pile of cash you put away for retirement and didn't touch, you would treat a contract like this the same way. If you don't plan on using it for retirement and leaving it alone, then you wouldn't do a contract like this or any long term investment since all most all of them have early with drawl fees or other penalties if you take the money earlier than agreed upon.

Most companies that offer life insurance have been in business for over 100 years. They are obviously very good at calculating risk, spreading the cost of it over thousands / millions of people depending on each person's exposure to a loss happening. Insurance companies also pay for insurance in the event something catastrophic happens. However they do have exclusions, if a nuclear bomb would go off taking out the entire east coast, chances are those companies wouldn't pay out on those life insurance claims. Each state also has Life and Health Guaranty Associations, which in the event one company would go out of business the other companies help out financially. I wouldn't say anything is impossible, but I don't have any worries about insurance companies any more than I would have with a bank for example.

Thanks for sharing your information with me. It's awesome that you have been able to accomplish all of your goals.

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Sosa

Each and every month money gets put into an IRA

Overload

if only you cud put yer shits on HALLEYBURTON or CARLYLE ... you'd be flying high ... argh

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candyflip

My mom is actually a financial planner/manager. So this is a literal statement for me.

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Sly

But would you be able to live your current life and the life you have mapped out had you not spent those 11 years working? How much of your current life would you be missing out on?

Granted, I'm sure you could have enjoyed those 11 years a little more and have a little less now, no problem. But it's a trade-off. Everyone has to decide what trade-off they want to make.

A little of both is probably best.

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401k and SEP-IRA here. After 9 or so years it has accumulated to a nice sum.

If you work for yourself, ask your accountant about SEP-IRA.

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xmas13

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will76

cute dogs.

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will76

Investing only a small part (%) of what you make towards retirement is what I would suggest people to do, not invest a lot of it.

Live today, tomorrow may never come or the global market changes might take away what you saved so you want to stay liquid. What happens if you don't die young and the global economy doesn't tank and your current business and investments over the next couple years fall apart? If you have no plan B, and you actually live to an old age, having to work the rest of your life you will probably wished you would have died early. I know I would. If I am working at 70, 75 years old shoot me. All of which could have been avoided if I put away a very small amount of money each month.

If your plan is to not have a plan b then you are basically betting your life on plan a. You have no room for error.

I put away about $800 a month into my long term retirement savings. I don't miss that money, I still do all the things I want to do. That isn't even a really nice car note. We not talking never do anything fun, eat beans and rice for 30 years so you can sock away money for retirement.

I didn't know you weren't 30 yet, I thought you were older. You have an amazing thing on your side, the power of time. Compounding interest is the best "investment" out there. Being that you are not even 30 yet, a smaller amount of money could compound longer and make you a fortune by the time you are 60 - 70 years old.

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