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Author: dustinp Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Retirement planning and other considerations Date: 8/19/2000 11:44 PM
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Hello, I am 24 and will start investing in the near future. At this time I am examining my investment opportunities, as well as deciding how to start on my (early) retirement.

Note that I have read the fool.com investment/retirement sections until my head aches (whether it is from the content or delivery I won't say), and so I feel that I am now at least an official 'beginner' Fool.

Anyway, I am not in a rush, but would like to hear any advice from this board.

To begin, currently the following life-plan is my overall assumption/target: begin investing for my future, own a home, raise 2 kids and send them to college, and live a comfortable existence when I retire -- I would like to be [able] to retire at 50, although I may not elect to do so until much later.

I am trying to decide on how to best begin investing without hurting my near-term financial needs. I would like to start investing money now so that in 30 years I'm laughing my way to the bank. However, I have to consider, among other things, the following:

1. I rent now, but want to own a home in the future (my rent is dirt-cheap at the moment fortunately)
2. I very well may start a business in the next 3/5/10 years

Thus, I am afraid to tie up too much money into retirement plans that are hands-off until 40 years down the road because I [may] need the money in the near-future. Yet, I realize that money needs to be invested for retirement now so it will be a painless process.

In your opinion, at my age is it best to use normal investing rather than 401(k) or IRA's? I realize that 401(k)'s offer FREE MONEY in most situations, but my current employer only matches the first $100 (small company). The problem with an IRA is that if I withdraw for any reason other than a home purchase I will be penalized, which will hurt the overall investment.

Just looking for comments, links, and leads.

Thanks!
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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24214 of 76418
Subject: Re: Retirement planning and other considerations Date: 8/20/2000 12:16 AM
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Thus, I am afraid to tie up too much money into retirement plans that are hands-off until 40 years down the road because I [may] need the money in the near-future. Yet, I realize that money needs to be invested for retirement now so it will be a painless process.

This isn't an either/or situation. You could have a 401(k) contribution of some of your money and use regular (taxable) investments for money you want to be able to access before you are 59.5 years old. (Add a third category: build up an emergency fund in a savings vessel, such as a money market fund or a money market account, to hold the equivalent of 3 to 6 months of living expenses to handle financial surprises we all seem to face.)



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Author: rjm1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24217 of 76418
Subject: Re: Retirement planning and other considerations Date: 8/20/2000 10:45 AM
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Hello, I am 24 and will start investing in the near future. At this time I am examining my investment opportunities, as well
as deciding how to start on my (early) retirement.

Note that I have read the fool.com investment/retirement sections until my head aches (whether it is from the content or
delivery I won't say), and so I feel that I am now at least an official 'beginner' Fool.

Anyway, I am not in a rush, but would like to hear any advice from this board.

To begin, currently the following life-plan is my overall assumption/target: begin investing for my future, own a home, raise
2 kids and send them to college, and live a comfortable existence when I retire -- I would like to be [able] to retire at 50,
although I may not elect to do so until much later.

I am trying to decide on how to best begin investing without hurting my near-term financial needs. I would like to start
investing money now so that in 30 years I'm laughing my way to the bank. However, I have to consider, among other
things, the following:

1. I rent now, but want to own a home in the future (my rent is dirt-cheap at the moment fortunately)
2. I very well may start a business in the next 3/5/10 years

Thus, I am afraid to tie up too much money into retirement plans that are hands-off until 40 years down the road because
I [may] need the money in the near-future. Yet, I realize that money needs to be invested for retirement now so it will be a
painless process.

In your opinion, at my age is it best to use normal investing rather than 401(k) or IRA's? I realize that 401(k)'s offer
FREE MONEY in most situations, but my current employer only matches the first $100 (small company). The problem
with an IRA is that if I withdraw for any reason other than a home purchase I will be penalized, which will hurt the overall
investment.

Just looking for comments, links, and leads.


Your post was well written.

You mention that you will begin to invest in the near future. Is this next month, next year or never. I think the first rule is to start now, not tomorrow.

There is a balance for all you needs and no one maybe able to figure it out so take a reasonalbe approach and get started.

Get into the 401k so you get the $100. This is part of starting today but not being sure how much you can lock up until retirement. Remember some 401k plans let you borrow for certain needs.

Next go to the ROTH. The $2,000 a year you put in can be taken out for a home.

Start a small regular purchase plan for a mutual fund.

You are paying cheap rent. Well lets figure out what your normal rent would be and put this into a savings fund for the home.

You have a lot of future needs (like everone else)so the question is not should I save (invest) but where to put the money. If you do nothing, for the near term, save a good part of your income in a money market account if nothing else. The point is money spent is gone but money saved can be used to build your future.

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24219 of 76418
Subject: Re: Retirement planning and other considerations Date: 8/20/2000 7:22 PM
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<<<In your opinion, at my age is it best to use normal investing rather than 401(k) or IRA's? I realize that 401(k)'s offer FREE MONEY in most situations, but my current employer only matches the first $100 (small company). The problem with an IRA is that if I withdraw for any reason other than a home purchase I will be penalized, which will hurt the overall investment.>>>

Rule of thumb, do 401(k) to max of company match. $100 sounds small but with a $100 match you've doubled your money. The principle ($2000) put into a Roth each year can be withdrawn without penalty, something to keep in mind if needed for emergency or downpayment, etc.

As always, first get rid of debt then build up a little emergency fund.

JLC



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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24225 of 76418
Subject: Re: Retirement planning and other considerations Date: 8/21/2000 11:47 AM
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Like a lot of things, it depends on your income and your expenses. Presuming that you have at least some free income to play with, here's what I would do:

- Max out your 401k unless it is truly a dog (ie only offers company stock or high fee annuities). This will get you started and help with your taxes. You can always borrow against this money (as a last resort).

- Set up an emergency fund of 3 to 6 mionths of expenses, depending on your risk of losing your job and your ability to reduce expenses on short notice. Plunk this money into a money market fund.

- With any extra cash, start saving. What you do with it will depend on your circumstances. If you are starting a business, you'll need liquid money. If you are buying a home, then ditto. If you are working on your career and not really needing the cash, you can open a Roth and invest in a taxable brokerage account.

Realy think twice about buying your home right now. Consider your local real estate market carefully. If prices are over-heated, then keep paying your nice, low rent and pile up the cash. When prices correct, you'll be ready to pounce. My wife and I bought our condo just under 2 years ago when the local market was taking a breather. The market has since driven up prices about 75% (!). If I were looking right now, I'd put my money away and keep renting, personally.

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Author: dustinp Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24240 of 76418
Subject: Re: Retirement planning and other considerations Date: 8/22/2000 11:27 AM
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I am not sure how you are causing the original post to be italicized, so I will just quote your message:

"This isn't an either/or situation. You could have a 401(k) contribution of some of your money and use regular (taxable) investments for money you want to be able to access before you are 59.5 years old. (Add a third category: build up an emergency fund in a savings vessel, such as a money market fund or a money market account, to hold the equivalent of 3 to 6 months of living expenses to handle financial surprises we all seem to face.)" - Mark0Young

Yes, I think I am going to put $100 (barring any minimum investment) into the 401(k) a year (hey, free money), and then invest the rest elsewhere. At the moment they are investigating new investments for the 401(k), but from what I have seen they are exclusively reviewing mutual funds. FYI, I made an inquery as to whether they would consider index funds, per my research here at fool.com and other sites.


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Author: dustinp Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24241 of 76418
Subject: Re: Retirement planning and other considerations Date: 8/22/2000 11:39 AM
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I'm clueless as to how to italicize quotes, so I will just enclose your post into quotes.

"You mention that you will begin to invest in the near future. Is this next month, next year or never. I think the first rule is to start now, not tomorrow."

Well, my final payment to SallieMae is next month, so two months from now. However, note that I have already opened an OLB account with Quick and Reilly ($500), so that I can investigate how the site works--I won't make any actual investments yet though.

On a related note, it would be nice if OLB sites had a "play" area where you could make pretend investments with play money. In this way you would learn how to work with their system, make investments, and tabulate your returns. Anyway..

"There is a balance for all you needs and no one maybe able to figure it out so take a reasonalbe approach and get started."

Yes, well, you are right in that it's best to just get started. An investment that has low returns is better than no investment at all I guess.

"Get into the 401k so you get the $100. This is part of starting today but not being sure how much you can lock up until retirement. Remember some 401k plans let you borrow for certain needs."

At a minimum I will be investing $100 into the 401(k) so that I get $100 in free money. Now, I just need to read the employee handbook to determine how long I must be employed there before I can actually get the $100..

"Next go to the ROTH. The $2,000 a year you put in can be taken out for a home."

Excellent. That's what I was looking for. I remember reading about the Roth in the retirement primer, but apparently I didn't take very good notes. I'll have to reread it. Hmm, can't you take out cash from any IRA for your first home?

"You are paying cheap rent. Well lets figure out what your normal rent would be and put this into a savings fund for the home."

Not a bad idea!


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Author: dustinp Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24242 of 76418
Subject: Re: Retirement planning and other considerations Date: 8/22/2000 11:50 AM
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"Rule of thumb, do 401(k) to max of company match. $100 sounds small but with a $100 match you've doubled your money."

Yup, true words.

"The principle ($2000) put into a Roth each year can be withdrawn without penalty, something to keep in mind if needed for emergency or downpayment, etc."

Ok. Sounds like the same advice I am getting everywhere, so it's obviously the way to go. I'll research more about Roth.

"As always, first get rid of debt then build up a little emergency fund."

With the exception of one more student loan payment I am completly debt-free. Now I can stop eating frank and beans every night..



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Author: dustinp Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24243 of 76418
Subject: Re: Retirement planning and other considerations Date: 8/22/2000 12:08 PM
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"Max out your 401k unless it is truly a dog (ie only offers company stock or high fee annuities). This will get you started and help with your taxes. You can always borrow against this money (as a last resort)."

You made the very interesting remark, "and help with your taxes." With the exception of a 401(k) being tax-deferred, does it help in any other way with my taxes, or do you simply mean that portion of my income invested in a 401(k) isn't immediately taxed?

"Set up an emergency fund of 3 to 6 mionths of expenses, depending on your risk of losing your job and your ability to reduce expenses on short notice. Plunk this money into a money market fund."

Good advice, and something that has been mentioned to me before. That will be my first action.

"Realy think twice about buying your home right now."

Funny that you should say that. My mother and several friends advocate that I quit "throwing my money away" on rent. However, those that invest say that right now is a bad time, and that because my rent is so low it's best to just wait.

In fact, from some estimates, what I pay in rent will actually be consumed every month by the new house for a year or so as I improve it. While that may be an "investment" per se into the value of my home, it does make a good case for just maintaining the status quo until I see an absolute steal of a deal.

In addition, interest rates are a bit high right now.. and if I buy a house my girlfriend might get the wrong idea! ;-)

For anyone still interested in this thread, here is my current plan in the order to be executed:

1. create a money market account that contains 4 months of no-job money--DO NOT TOUCH
2. invest the max rate into my 401(k) that will be matched by my employer
3. invest all other "savings" into a Roth

Anyway, I have at least one more month until I will actually execute this plan, so I will read more about Roth and other vehicles for investing money.

Thanks for the help everyone!


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Author: Macarthur Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24304 of 76418
Subject: Re: Retirement planning and other considerations Date: 8/24/2000 9:33 AM
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"In addition, interest rates are a bit high right now.. and if I buy a house my girlfriend might get the wrong idea! ;-)"


Maybe, but... In 1979, my wife and I bought a home on contract with a 10% rate - a good deal, as normal rates were higher.
My mother-in-law thought that was terrible, that we should wait for rates to drop.
By the time rates dropped back below 10% in the early 90's, my mother-in-law had been dead for a couple of years.
Remember, you can always refinance.

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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24378 of 76418
Subject: Re: Retirement planning and other considerations Date: 8/26/2000 9:24 PM
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With the exception of a 401(k) being tax-deferred, does it help in any other way with my taxes, or do you simply mean that portion of my income invested in a 401(k) isn't immediately taxed?

No, just that a 401(k) is (usually) funded with pre-tax money. So if you contribute $1200/yr to your 401(k), box 1 of your W-2 will be $1200 smaller than the wages you earned. During the year your withholding would likewise be less. (FICA and disability insurance are computed based on the total salary, but federal income tax and probably state income tax are computed after that $1200/yr is subtracted off.)

When you file your Year 2000 taxes next year, since box 1 of your W-2 had already been adjusted down for the 401(k) contributions, you would do nothing special for the 401(k) contributions.

The money in the 401(k) can then grow "tax deferred".

Only when you start drawing money out of the 401(k) would you pay taxes on that money. At that time you would have to pay what then will be your ordinary income tax rates.

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