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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308362  
Subject: Should I make 401k contributions? Date: 9/8/2006 10:12 PM
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As I have posted, we are in debt pay down mode. At best it will probably take a couple of years to pay off credit card debt and car loan. I know that conventional wisdom is to stop non-matching 401(k) contributions until debts are paid.

I'm not sure we should do that though.

DH is in his late 50s and earns about 40% of our earned income. He has contributes 6% of his salary to his 401k all of which is 100% matched by his employer. Ultimately we would like to increase this but probably won't until we have paid off the credit cards. (While not relevant to this discussion, I might mention that DH will receive a traditional pension from his employer on retirement). He has about $155,000 in his 401k account.

I am in my early 50s and earn the remainder of our income. Each year my employer makes a profit sharing contribution which is not dependent on my contributing anything to the 401k account. That is, even if I contribute zero my employer still makes the contribution. This amount varies from year to year but for the contribution for last year was roughly 6.5% of my salary. I do not currently contribute to my 401k plan and have about $91000 in the plan.

I know that many would say that I shouldn't contribute to the plan while we still have credit card debt. That was the rationale that I used when I didn't make contributions in the past. I did make them for a couple of years then decided that I should stop contributing until we had debt paid off. But, guess what? Debt didn't get paid off and I didn't make contributions. I'm not sure that was all that smart of me.

Given how close we are to retirement age, I'm not sure that I should lose 2 of the relatively few years left that I have to make contributions. So, I am inclined to start putting, oh, 4 to 5% into my 401k now even without having paid off all debt?

Thoughts?

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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236672 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/8/2006 10:31 PM
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Can you squeeze any more out of your budget to compensate for any amount you might contribute to your 401k? You could just take any pay increases and apply it to your 401ks instead.

Fuskie
Who thinks you will be able to catch up faster when your debt is paid off and can direct that newly disposable cash toward your retirement...


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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236673 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/8/2006 10:40 PM
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I am going to apply raises to 401k. But, I'm still inclined to start contributing something - maybe $8k a year or so - to my 401k. I want to get the value of at least a little compounding given my age.

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Author: tmeri Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236675 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/8/2006 10:54 PM
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Thoughts?

I put out some thoughts here earlier today:

http://boards.fool.com/Message.asp?mid=24561607


Part of your choice depends upon your situation. If you have already pared down living expenses to the bare minimum, then you probably don't want to make contributions to your 401k. Experience has taught me, though, that when people say "I can't reduce my spending any further" what they generally mean is "I don't want to reduce my spending any further." Very few people can't save a little more than they are.

So assuming that you have a little room left, I'll offer the following observation. People that have trouble controlling their spending are MUCH better off increasing their automatic "savings" as much as possible in vehicles that are difficult to liquidate. I put "savings" in quotes because this could be either direct savings, like in a 401k, or indirect savings, like making bigger mortgage payments. Saving to a saving account is the least good idea for these people because it's far too easy to go get it and spend it.

When you have fewer discretionary funds to spend, you will spend less on discretionary items.





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Author: tmeri Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236676 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/8/2006 11:01 PM
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But, I'm still inclined to start contributing something - maybe $8k a year or so - to my 401k. I want to get the value of at least a little compounding given my age.

Nope, nope, nope. Debt compounds, too, and generally more steeply than savings does. But what you DO get for putting something in the 401k is a tax deduction and extra time in a tax-sheltered vehicle.

A 401k-->IRA is also nice in retirement because it allows you to rebalance without triggering a taxable event.






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Author: persuasive1 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236677 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/8/2006 11:11 PM
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DM,

I too am in cc payoff mode, and I am still contributing 5% to 401k.

I stopped it for a year also, and like you I got honest with myself and realized that it wasn't going to the bills anyway, so I elected to start it up again at the next opportunity.

The lowering of taxable income makes up for a portion of the deduction, so your net pay when only doing a 4 or 5% deduct, shouldn't be all that noticeable; try running a calculator on it.

Good luck!

Janet

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236678 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/8/2006 11:26 PM
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Oh, yes, I realize that debt compounds. I still intend to pay down debt quite aggressively. I don't guess I put it the right way. I was trying to convey that I have a limited amount of time to make 401k contributions and even I contribute the maximum in future years there won't be all that many future years so I wanted to get some start on it now since I can't get "back" this year....

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236679 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/8/2006 11:28 PM
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The lowering of taxable income makes up for a portion of the deduction, so your net pay when only doing a 4 or 5% deduct, shouldn't be all that noticeable; try running a calculator on it.

Yes, I am in a high enough tax bracket that if I do this I will reduce my withholding a bit so the net difference will be less than the amount going to the 401k.

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Author: tmeri Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236680 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/8/2006 11:59 PM
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Oh, yes, I realize that debt compounds. I still intend to pay down debt quite aggressively. I don't guess I put it the right way. I was trying to convey that I have a limited amount of time to make 401k contributions and even I contribute the maximum in future years there won't be all that many future years so I wanted to get some start on it now since I can't get "back" this year....


I think that's a very wise plan.




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Author: rosietomato Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236681 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 12:14 AM
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determinedmom,
You are asking an excellent question and I too am interested in hearing the feedback. DH and I are in your age bracket. I only have $250K in my retirement 403B (and DH has a pension, no 401K though I've convinced him to put $ in a Roth. His pension will net him only $2K per month but goes away on his death). Yes, I make much more than my DH, but don't have any possibility of a pension.

I just was informed today that I got a $500/month raise and plan on sweeping it all into my 403B (and not pay off the family cruise expenses of an earlier post). I used the Fool calulators and if I put $2.2K per month (I'm putting $1.9K right now) and DH puts $350 per month towards retirement we can have a million dollars in 10 years (assuming 8% ROI). This won't get us as flush in money in retirement but we are both passionate people and plan on working part time in early retirement doing the things we love, teaching. And gosh this sounds terrible but we have our fingers crossed that the rest of our retirement will be 'ok' at that level.

I only (hahahahahaha still that is a LOT of money since I have a lot of expenses/needs and that includes $10K for SS college, where we're paying out of state tuition) have $10K in CC debt and 6 years left in my mortgage. My property is worth 5x my mortgage but it is my 'forever home' and we will never sell it so its value is worth nothing in our financial book, and will remain a liability to keep it up. Thus we need to make sure that we have enough to take care of our 'forever house' as well as our medical and regular living.

OK so my answer to you is concern. Concern that you really need to max your retirement accounts NOW because right now or you will be working until the two of you are in your late 70s! And since I don't know what sector you guys are working in, I don't know how long your employers will allow you to actually work at your salary level.

You have children that are rapidly approaching college age. You will have to deal with paying or paying part for college. Right now you have really got a great handle on your budget (horray!). You plan on taking care of your mom when she needs it(horray!). Your CC debt may be able to be covered with your bonuses (yes!!!), but your income bracket makes it much more prudent to sock pay increase money away in your retirement accounts instead of spending it. IMO costing 28% less in federal taxes is better than any CC finance charges, but please someone enlighten me if I'm wrong!

Now realize that is my opinion. Maybe someone on this list can run the numbers to disagree with me, and if so I'm open to new data.

determinedmom, you are a saint in my books. I wish I was as adept as you in budgeting your finances.

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Author: tmeri Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236683 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 12:59 AM
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DH has a pension, no 401K though I've convinced him to put $ in a Roth. His pension will net him only $2K per month but goes away on his death). Yes, I make much more than my DH, but don't have any possibility of a pension.

Are you sure about that? Most pensions come with a joint option. However, it is often cheaper to take the single life annuity and buy term life insurance until the pensioner dies. The drawback of this plan is if the beneficiary is not able to control his or her spending, the life insurance payment might be spent too quickly. In that case, it is probably smarter to take the joint life annuity.




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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236684 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 1:03 AM
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Rosietomato - you are very much asking the questions that I ask. I have spent a lot of time thinking about all these issues lately.

...we can have a million dollars in 10 years (assuming 8% ROI). This won't get us as flush in money in retirement but we are both passionate people and plan on working part time in early retirement doing the things we love, teaching. And gosh this sounds terrible but we have our fingers crossed that the rest of our retirement will be 'ok' at that level.

I've been thinking about that lately. I know that everyone seems to say that you need 80% of pre-retirement income during retirement and if you had a high income pre-retirment well that is a lot of money. but, I look at my mother and see her happily living on, oh, about 5% of my current income. And, when I run my post-retirement numbers they are a lot less than many of the projections that I see here. I think a lot of it just depends on how you want to spend your retirement.

I only (hahahahahaha still that is a LOT of money since I have a lot of expenses/needs and that includes $10K for SS college, where we're paying out of state tuition) have $10K in CC debt and 6 years left in my mortgage. My property is worth 5x my mortgage but it is my 'forever home' and we will never sell it so its value is worth nothing in our financial book, and will remain a liability to keep it up. Thus we need to make sure that we have enough to take care of our 'forever house' as well as our medical and regular living.

The getting your house paid off will be a great benefit to you. As, I think everyone here must know, we plan to build a house. I know the pitfalls and have analyzed it. The good news is that I actually think we could fairly easily pay off the house within 8 years of building it. However, there is a catch. We can do that by cutting our retirement savings. So, I debate whether to (after credit cards are paid) to aggressively attack the mortgage at the expense of the retirement or aggressively found retirement at expense of mortgage or to try to sort of split the baby (which I am sort of leaning to...once credit cards and car loan are gone contribute the max we can to 401k - currently $20k counting catch up contributions then put the excess over that to setting a schedule to pay off the mortage in roughly 8 to 10 years...still need to do so more number crunching though)

Concern that you really need to max your retirement accounts NOW because right now or you will be working until the two of you are in your late 70s! And since I don't know what sector you guys are working in, I don't know how long your employers will allow you to actually work at your salary level.

Well, DH won't want to work until his late 70s. We wants to retire at or around 65 or 66. I actually work in a field where it is common to work past retirement age although one may slow down a bit. That said, I would prefer to not do so if I don't have to. But I have a lot of competing demands so I'll work as long as I need to in order to meet them...

You have children that are rapidly approaching college age. You will have to deal with paying or paying part for college. Right now you have really got a great handle on your budget (horray!). You plan on taking care of your mom when she needs it(horray!). Your CC debt may be able to be covered with your bonuses (yes!!!), but your income bracket makes it much more prudent to sock pay increase money away in your retirement accounts instead of spending it. IMO costing 28% less in federal taxes is better than any CC finance charges, but please someone enlighten me if I'm wrong!

I am in the 33% tax bracket so that may impact the issue of whether it makes sense for me to do more 401k contributions even if it slows down the credit card payoff somewhat. The college issue is a big one. I am thankful that my son's actually want to attend state universities that are not that expensive. OTOH, I expect to have two in college at the same time. On still another hand, however, one of them won't be getting anything from me for college if he doesn't stop misappropriating our money.


determinedmom, you are a saint in my books. I wish I was as adept as you in budgeting your finances.

Thanks...but I feel just the opposite about myself. I am capable of budgeting. I am well educated and knowledgeable.

And I am the biggest idiot in the whole wide world.

I am so furious at myself for not handling all this better. Yes, life has thrown a few curves at me (mostly kid related). And, when I started work 401k plans didn't exist and my early jobs had no retirement savings of any kind. Yet, I spent money like I had an endless supply. I thought of credit limits or credit cards as cash. I can remember thinking when I would get a credit limit increase that I now had more money to spend. Wasn't that idiotic? Rationally, I knew better. But, I think I felt I had to have....X and I couldn't wait. I would get it now and, if I paid interest, so what.

Of course, I knew that retirement would loom someday. I didn't marry until my late 30s and thought I would be responsible for myself. I guess I thought that I could catch up later. I was going to save...next year or the year after or maybe that year next decade.

But, then I got married and decided to have children. My bio son was born right after I turned 40 years old. And, I loved being a mom. So we adopted two more children. And, I'm not sorry but I really think I didn't think it out from a financial point of view.

When my son was born and I was 40, we were in relatively good financial shape. A little debt but nothing major. New house that was well within our budget. It never occurred to me that this newborn child might result in extraordinary expenses (that is, beyond those of most children). I was at a point when I really needed to focus on two things ... saving for retirement and saving for college. Had we simply done that during the last 12 years then we would be fine now. But, we didn't. We adopted two more children, resulting in huge expenses some of which were anticipated and others were not. And, since then, we've been on a treadmill and making little headway.

So, while I thought I could catch up I really haven't been able to do so at least not to the extent I wanted to, intended to.

And, I rightfully blame myself the most. Yes, I've gotten with the program now. Suddenly (it seems) I woke up to the fact that I am in my 50s and DH is pushing 60. And college is looming very quickly. And the time is fast running out. So, it is easy to focus on all this now. Fear will do that.


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Author: tmeri Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236685 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 1:38 AM
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I know the pitfalls and have analyzed it. The good news is that I actually think we could fairly easily pay off the house within 8 years of building it.

I don't know if you are open to reconsidering this, but I have to ask, have you ever built a home before? If not, you probably haven't really analyzed it properly. It always costs more than you think for a variety of reasons, not limited to:

1. Contractors have a propensity to deceive you about the cost. When you start finding out what they meant by "vinyl flooring in the kitchen," you decide you don't really want any of the cheapest available and decide to upgrade. And this will apply to thousands and thousands of decisions, so whatever the contractor estimates, it's going to end up costing you more.

2. You don't know everything when you start, and as the process goes on, you start to realize how things could be so much better if we just did X. Those design changes after the start of project are really costly. "Gee, if we ever wanted central vac," [and I assure you, you do] "now would be the easiest time to put it in."

3. The estimate the builder gives you doesn't really include landscaping like you'll want, just enought to get a C.O. You'll spend thousands more on landscaping.

4. First thing that happens when you move in is you realize you have to have curtains on the windows. Then you need new towels in the master bath because your old ones are the wrong color. Your old den furniture is 20 years old and looks kinda tacky in your more public family room now. The new house has a breakfast nook in addition to a dining room, so you'll need a breakfast table. You'll need a new desk for the new office, and now that you have a nice patio, you'll be wanting patio furniture to enjoy sitting out there in the evening.


Mostly I'm confused here. You're in your 50's, you're trying to pay off CC debt, you have children (three, right?) you still have to send to college, you're trying to squeeze a few dollars into your 401k, you want to build a new house, and you'd like to retire in 10 or 15 years? I don't see how all this is going to be possible. I think I see the problem though:

So, I debate whether to (after credit cards are paid) to aggressively attack the mortgage at the expense of the retirement or aggressively found retirement at expense of mortgage or to try to sort of split the baby

You've illustrated the problem nicely, and it's one we all have to wrestle with. You want to use the same dollars for different uses. We all have to come to grips with the fact that we can't do it all.

Add it all up and see what everything realistically costs. Then you'll have to cut the least important things until you can get what you really want out of life.


I look at my mother and see her happily living on, oh, about 5% of my current income.

That is truly astonishing.


I am so furious at myself for not handling all this better.

Don't be too hard on yourself. Most of us have made some really bad choices in our lives. You really can't make it better by feeling bad about what's happened.

What you can do is change the future. Stop regretting the past and start making better decisions in the future. I think you are a tad unrealistic about what can be done financially, but you're definitely headed in the right direction.






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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236686 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 2:19 AM
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I don't know if you are open to reconsidering this, but I have to ask, have you ever built a home before?

We bought a spec house that was in the framing stage and completed it from there.

If not, you probably haven't really analyzed it properly.

Oh, I think I have. This is part of what I do for a living. I actually know quite a lot about both residential and commercial construction.

Contractors have a propensity to deceive you about the cost. When you start finding out what they meant by "vinyl flooring in the kitchen," you decide you don't really want any of the cheapest available and decide to upgrade. And this will apply to thousands and thousands of decisions, so whatever the contractor estimates, it's going to end up costing you more.

This might be why I spent all last weekend writing specifications for this house. We are specifying as much as possible before getting bids. I already know the model number, for example, of all major appliances and am ready to specify many things. There are areas wher I am currently still tearing my hair out working on specifying which I am actually quite early.

You don't know everything when you start, and as the process goes on, you start to realize how things could be so much better if we just did X. Those design changes after the start of project are really costly. "Gee, if we ever wanted central vac," [and I assure you, you do] "now would be the easiest time to put it in."

I do not want central vac (partly because this will be a house without carpet). We are spending what some people feel is an inordinate amount of time in the design phase just so we won't face those types of issues. When we bought that spec house, we had a few change orders but really not many. I do not like change orders and will minimize them.

The estimate the builder gives you doesn't really include landscaping like you'll want, just enought to get a C.O. You'll spend thousands more on landscaping.

I can pull out what I spent on landscaping on my last house. I know what it costs. We are building on acreage though there will not be huge landscaping for what we want to do. Fencing costs are another story, however...

First thing that happens when you move in is you realize you have to have curtains on the windows.

I plan to get Pella Designer Windows with the blinds inside. No window coverings. I did Window coverings ($7000 worth) to the house I built 14 years ago. Never again.

Then you need new towels in the master bath because your old ones are the wrong color.

No, I won't. I bought new towels for the master when we got our old house ready for sale (the one we sold in July) and I like them just fine.

Your old den furniture is 20 years old and looks kinda tacky in your more public family room now.

No it isn't and it doesn't.

The new house has a breakfast nook in addition to a dining room, so you'll need a breakfast table.

No, it doesn't. The old house had a breakfast nook and dining room. The new house will have nook only (since we never use a formal dining room). That said, we do need a new breakfast room table and chairs but I've priced them and it won't be expensive.

You'll need a new desk for the new office,

No, I don't.

and now that you have a nice patio, you'll be wanting patio furniture to enjoy sitting out there in the evening.

I had a nice patio at my old house and that patio furniture still looks fine (in fact it is currently being used as my breakfast nook furniture in the rental house we are in now since I don't actually have a patio at the moment...at the new house, it goes back on the patio).

Look, I'm sorry if I sound sarcastic. I don't mean to. You've been helpful on the 401k issue. But, I actually know quite a lot about construction (people pay me for my advice on some of these issues actually) and have considered and dealt with all of the issues you've raised.

Mostly I'm confused here. You're in your 50's, you're trying to pay off CC debt, you have children (three, right?) you still have to send to college, you're trying to squeeze a few dollars into your 401k, you want to build a new house, and you'd like to retire in 10 or 15 years? I don't see how all this is going to be possible.

Yes, well, it's a problem. But, what do I do?

I can't change my age or that of my DH.

I need to pay off the CC debt (and that is going well right now and think it will be accomplished in 18 months to 2 years).

I do indeed have 3 children. Maybe that wasn't wise and they've brought some expensive challenges to us, but there they are and so I can't do much about that one.

I probably do have to send them to college although it may not be as expensive as you think. Oldest DS is on very thin ice with me. I love him but he has had some major honesty problems and has stolen from us repeatedly. If he doesn't change, not only will I not be paying for college, he can find somewhere else to live for his last year of high school (he will be 18 going into his last year). Sorry if it sounds harsh but that's how it is.

Younger DS is brilliant with significant ADHD (hence the therapeutic school). He will start college at 16 and will likely live at home and attend college the first couple of years. That will actually be much less expensive than his current school tuition.

My daughter, well, who nows what will happen? She tells people that she doesn't like to learn (I understand not liking school but she says she doesn't like to learn). Maybe she'll change and want to go to college but I'm not holding my breath.

I think I see the problem though:

So, I debate whether to (after credit cards are paid) to aggressively attack the mortgage at the expense of the retirement or aggressively found retirement at expense of mortgage or to try to sort of split the baby

You've illustrated the problem nicely, and it's one we all have to wrestle with. You want to use the same dollars for different uses. We all have to come to grips with the fact that we can't do it all.

Add it all up and see what everything realistically costs. Then you'll have to cut the least important things until you can get what you really want out of life.

Trying to squeeze money into the 401k. Yes, I am trying to do that. I projected out these things the other day. I can fairly easily get us to 1.2 million based upon our current savings and 401k money so long as we have no major disasters. Getting to 2 million is a little tougher.

As for building a house and retiring in 10 to 15 years...

We have to live somewhere. We own the land we are building on. We sold our house and are currently renting. We've exhausted our possibilities for buying an existing house in the area we want to live in. I don't love the idea of building. Your litany of building issues doesn't even touch the real issue I don't want to build. I worry about construction defects with any new house and prefer resale houses because it is easier to weed out that kind of problem. But, we've spent almost a year looking at houses in the area we want to live in...the area we sold our house and moved to just this summer...and there really is nothing suitable. The house we will build is not ostentatious and is smaller than the house we just sold.

I look at my mother and see her happily living on, oh, about 5% of my current income.

That is truly astonishing.


Not really. First, we have a high income. Second, her house is paid for and she has no debt and hasn't had any in about, oh, 40 years (my parents paid off their house in the mid-1960s. They never had any debt after that). She is very frugal and doesn't have a lot of "wants." Her expenses are very low.





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Author: BklynBorn Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236687 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 3:40 AM
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I don't know nothin bout building no houses, but I do know stuff happens. Always. Even when I absolutely positively double-secret-probation can't imagine it/am sure I've covered everything.

Very truly yours,

BB

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236688 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 3:44 AM
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I don't know nothin bout building no houses, but I do know stuff happens. Always. Even when I absolutely positively double-secret-probation can't imagine it/am sure I've covered everything.

I know stuff happens. That is why our on paper maximum budget (that is, the maximum amount we plan to contract for and our doing our planning around is actually 10% below our in the heart budget...these 10% is not meant to be for design upgrades, etc as we are doing that planning in advice...but is to cover the stuff happens kind of thing)


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Author: BklynBorn Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236689 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 4:05 AM
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dm,

There's a great outdoor adventure book, from one of the original columnists for Outside magazine, called "Pecked to Death by Ducks".

Sometimes I think we should make that the sub-title of this board.

What do you think?

8-)

BB
mazel tov on your plans

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236690 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 4:06 AM
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"There's a great outdoor adventure book, from one of the original columnists for Outside magazine, called "Pecked to Death by Ducks".

Sometimes I think we should make that the sub-title of this board.

What do you think?"

You're too funny...and I vote yes.

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Author: shirehobbit Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236692 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 10:16 AM
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Yes, yes, yes! Or Peck, peck, peck! *grin*

I am in debt pay down mode and am also contributing to my retirement account. I am pushing 50 and sadly have very little put away for my golden years. So I am repairing the damage in two areas at the same time.

shirehobbit


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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236693 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 10:38 AM
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I've been thinking about that lately. I know that everyone seems to say that you need 80% of pre-retirement income during retirement and if you had a high income pre-retirment well that is a lot of money. but, I look at my mother and see her happily living on, oh, about 5% of my current income. And, when I run my post-retirement numbers they are a lot less than many of the projections that I see here. I think a lot of it just depends on how you want to spend your retirement.

Yes, a lot of it really does depend on how much you want to spend in retirement. And if you start getting into the savings mode during your CC payoff, it will be that much easier to increase your savings once the CC payoff is done - if you run out of room in your tax-deferred accounts, you can start investing in taxable accounts.

My recommendation would be to start out with 3% - 4% toward your 401(k)while you are paying down any double digit credit cards. At your tax bracket, it's only costing you 2/3 of what you are putting in, so that in itself is worth something. Once you have your CC debt all down to single digits, start increasing the 401(k) contributions, maybe a percent every month or two, or a percent every time you pay down another $5,000 on your cards, or something like that. When you get your credit cards paid off, then increase both your and DH's 401(k)s so you will max them out.

As, I think everyone here must know, we plan to build a house. I know the pitfalls and have analyzed it. The good news is that I actually think we could fairly easily pay off the house within 8 years of building it. However, there is a catch. We can do that by cutting our retirement savings. So, I debate whether to (after credit cards are paid) to aggressively attack the mortgage at the expense of the retirement or aggressively found retirement at expense of mortgage or to try to sort of split the baby (which I am sort of leaning to...once credit cards and car loan are gone contribute the max we can to 401k - currently $20k counting catch up contributions then put the excess over that to setting a schedule to pay off the mortage in roughly 8 to 10 years...still need to do so more number crunching though)

It's kind of a catch-22, but for every $1000 in monthly mortgage payment that you have in retirement, you will need to have $300,000 in retirement savings to withdraw from at a safe withdrawal rate of 4%. Most non-interest-only $300,000 mortgages have a payment that is significantly higher than $1000, so it's probably better to pay down the mortgage.

So, what I am doing is that I have figured out the amortized payment that will allow me to pay off my house in 10 years. I will max my 401(k) and pay that house payment, and any other 'retirement' money beyond that goes into taxable investments. That way, in 10 years, I will have a large 401(k), a paid off house, and some additional taxable investments. At that point, depending how well my investments have done and how much medical insurance will cost, I may retire, or I may start investing the former house payments, and retire a few years later.

You may want to look at something similar once you have your CC debt paid off.

AJ

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Author: bleplatt Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236696 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 11:31 AM
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I am also in serious debt paydown mode, but have made the decision to contribute the full matching amount to my 403b. (I could *really* pay the debt down faster if I would stop the matching.)

For me, it's partially psychological. My life is not just my past and present, but also my future. My retirement account is a source of hope for me while my debt is a source of despair. Putting money away for the future means I am investing in myself and my beliefs, hopes, and ambitions for the next 40 years.

b

ps--you're doing awesome. I am learning a great deal about home building and determination from you.


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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236700 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 1:18 PM
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Congrats, Rosie!

Fuskie
Who thinks there is nothing wrong with contributing to your retirement while paying off debt as long as you are searching every nook and crany for disposable cash to send to the cards...

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236701 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 1:21 PM
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My retirement account is a source of hope for me while my debt is a source of despair.

Wow! Great quote. So true.

I think I am about decided that I will put 5% in my 401k for the rest of the year, reducing my withholding by 2%.

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Author: tmeri Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236705 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 3:45 PM
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I do not want central vac

I see you took my comments on what kinds of things can go wrong as a specific list to be addressed. I guess I should have been more explicit that they were the kinds of things that happen. My experience with most people is that they have trouble imagining what might go wrong, and a few illustrations helps enormously with their ability to forsee other problems, even if those are not the exact problems.

Look, I'm sorry if I sound sarcastic. I don't mean to.

If you don't mean to be sarcastic, don't be. I was not trying to "peck you to death," though I understand that any honest appraisal can be interpreted that way by people who are sensitive to the truth.


You've been helpful on the 401k issue.

I'm surprised to hear you say this, truly. Your responses to people tend to shut them off. If you think you are getting help from people, you should be a little more gracious. They might not continue to offer helpful advice if you don't.


But, I actually know quite a lot about construction (people pay me for my advice on some of these issues actually) and have considered and dealt with all of the issues you've raised.

I had no idea what you do. When someone asked what business you are in you were evasive in answering. So I had no idea what you did. You come across as a bit high-handed about the matter, as though you were offended that I was talking down to someone who already knows. Should I have been expected to know that you know all of this?


I can fairly easily get us to 1.2 million based upon our current savings and 401k money so long as we have no major disasters.

It sounds like you have everything underhand and are well on your way. I doubt you need my advice. My only expertise is knowing how to live poor.


I'm really not sure why you are asking for advice here. I offered you some advice, and your answer boils down to "I've already got it all covered." This particular post makes it sound like you are in much better shape than it previously appeared. I sort of feel like I was set up here.




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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236706 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 4:13 PM
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DM: I think you are gracious...
:)

I actually have seen you revise a lot of your assumptions and habits since reading all the advice on these boards. Some things you have dug your heels in about, but then don't we all.

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Author: Hohum77 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236707 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 5:11 PM
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Hi DM,
I thought someone would have mentioned it in the first 24 posts...401k catch-up contributions. I am not aware of those disappearing in the next year or two, so that could offer some benefit as the CC debt is at the tail end of being eliminated. That's another 5K that factors into the equation.

Actually I was thinking, with your aggressive CC paydown schedule, you might have better CC balance transfer offers that potentially reduce your interest payments on the last 15-20K of CC debt. That savings becomes another item in your arsenal of savings.


Hohum

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236708 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 6:18 PM
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I do not want central vac</>

I see you took my comments on what kinds of things can go wrong as a specific list to be addressed. I guess I should have been more explicit that they were the kinds of things that happen. My experience with most people is that they have trouble imagining what might go wrong, and a few illustrations helps enormously with their ability to forsee other problems, even if those are not the exact problems.

It isn't so much that I took it as a specific list to be addressed as the fact that I was trying to demonstrate, by example, that I had thought of those kinds of things. Truthfully, I have thought of everything on your list as well as many other things that weren't on your list.

You've been helpful on the 401k issue.

I'm surprised to hear you say this, truly. Your responses to people tend to shut them off. If you think you are getting help from people, you should be a little more gracious. They might not continue to offer helpful advice if you don't.


If my responses to people are designed to shut them off, then I'm afraid I haven't been very successful. My first thread on this forum was 256 posts long! From my perspective, I think I have found a lot of help here and I've gotten a lot of good suggestions. I've made the point before, and will make it again, that just because a specific suggestion doesn't work for my situation doesn't mean that I didn't get anything valuable from it. On this type of forum, it is always easy to oversimplify when giving advice because you never know enough about the specifics of someone's situation. I find that as the advice giver sometimes. So, when someone gives advice that doesn't work for me, I can certainly appreciate it while feeling that it won't work for me.

I am perhaps different from some others in that I believe that if you or someone else takes time to write an extensive post giving me suggestions, that it is most polite to respond to the post explain why it does or doesn't work for me. That may make me come across as rejecting suggestions. Other people in that situation might just ignore the post or, worse, leave and not come back. I think the more polite thing is to explain what my view is on the suggestions made.

But, I actually know quite a lot about construction (people pay me for my advice on some of these issues actually) and have considered and dealt with all of the issues you've raised.

I had no idea what you do. When someone asked what business you are in you were evasive in answering. So I had no idea what you did. You come across as a bit high-handed about the matter, as though you were offended that I was talking down to someone who already knows. Should I have been expected to know that you know all of this?


Well, if I had been posting your message I believe that I would have known this. I would have known this because, before making these kinds of suggestions, I would have searched through the OP's other posts to find out more about the OP and would likely have come across the OPs other posts detailing these issues. The issues you have raised have already been raised by others in other threads and I have responded to them previously.

As far as my business, I don't think anyone has directly asked me what business I am in. Some people have said that they don't know and I didn't enlighten them as it wasn't germane to the issue. I have had a little reluctance saying too much since I feel embarrassed by my financial situation and would prefer that no one in my real life know what an idiot I've been. However, at this point, I guess it doesn't matter. I've said enough about my family that anyone who actually knows me could figure it out from existing posts. I am an attorney.

I can fairly easily get us to 1.2 million based upon our current savings and 401k money so long as we have no major disasters.

It sounds like you have everything underhand and are well on your way. I doubt you need my advice. My only expertise is knowing how to live poor.


I'm really not sure why you are asking for advice here. I offered you some advice, and your answer boils down to "I've already got it all covered." This particular post makes it sound like you are in much better shape than it previously appeared. I sort of feel like I was set up here.


I think you are mixing apples and oranges. I did not ask for advice on this thread on the building a house issue. I neithered requested nor wanted advice on the issue of risks involved in building a house (not because I think the risks don't exist, but because I don't need advice on that particular issue). You wanted to give advice on an unasked issue. Fair enough. However, had you looked at my other posts you would have realize I've addressed this issue several times. (In fact, my membership has been extended twice because two of my threads on this issue became hot topics for the week). So, yes, I think I do have it covered on the construction risk front. But this topic wasn't about that. I was asking about whether I should eschew conventional wisdom and contribute to my 401k while still paying down debt. That was the issue I wanted suggestions on and you and several others were helpful on that topic.

I don't know if this posts says I'm in better shape or not. In one of threads on the building forum it was suggested that I should have enough retirement to replace something like 80% of pre-retirement income. If so, then $1.2 million won't come close, particularly if I don't factor in social security and DH's pension. So, my concern about retirement planning is most certainly genuine.


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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236709 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 6:21 PM
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Sorry...I should have previewed that to make sure my tags were all closed. I didn't mean to create an eyesore. Here it is properly formated

I do not want central vac

I see you took my comments on what kinds of things can go wrong as a specific list to be addressed. I guess I should have been more explicit that they were the kinds of things that happen. My experience with most people is that they have trouble imagining what might go wrong, and a few illustrations helps enormously with their ability to forsee other problems, even if those are not the exact problems.


It isn't so much that I took it as a specific list to be addressed as the fact that I was trying to demonstrate, by example, that I had thought of those kinds of things. Truthfully, I have thought of everything on your list as well as many other things that weren't on your list.

You've been helpful on the 401k issue.

I'm surprised to hear you say this, truly. Your responses to people tend to shut them off. If you think you are getting help from people, you should be a little more gracious. They might not continue to offer helpful advice if you don't.


If my responses to people are designed to shut them off, then I'm afraid I haven't been very successful. My first thread on this forum was 256 posts long! From my perspective, I think I have found a lot of help here and I've gotten a lot of good suggestions. I've made the point before, and will make it again, that just because a specific suggestion doesn't work for my situation doesn't mean that I didn't get anything valuable from it. On this type of forum, it is always easy to oversimplify when giving advice because you never know enough about the specifics of someone's situation. I find that as the advice giver sometimes. So, when someone gives advice that doesn't work for me, I can certainly appreciate it while feeling that it won't work for me.

I am perhaps different from some others in that I believe that if you or someone else takes time to write an extensive post giving me suggestions, that it is most polite to respond to the post explain why it does or doesn't work for me. That may make me come across as rejecting suggestions. Other people in that situation might just ignore the post or, worse, leave and not come back. I think the more polite thing is to explain what my view is on the suggestions made.

But, I actually know quite a lot about construction (people pay me for my advice on some of these issues actually) and have considered and dealt with all of the issues you've raised.

I had no idea what you do. When someone asked what business you are in you were evasive in answering. So I had no idea what you did. You come across as a bit high-handed about the matter, as though you were offended that I was talking down to someone who already knows. Should I have been expected to know that you know all of this?

Well, if I had been posting your message I believe that I would have known this. I would have known this because, before making these kinds of suggestions, I would have searched through the OP's other posts to find out more about the OP and would likely have come across the OPs other posts detailing these issues. The issues you have raised have already been raised by others in other threads and I have responded to them previously.

As far as my business, I don't think anyone has directly asked me what business I am in. Some people have said that they don't know and I didn't enlighten them as it wasn't germane to the issue. I have had a little reluctance saying too much since I feel embarrassed by my financial situation and would prefer that no one in my real life know what an idiot I've been. However, at this point, I guess it doesn't matter. I've said enough about my family that anyone who actually knows me could figure it out from existing posts. I am an attorney.

I can fairly easily get us to 1.2 million based upon our current savings and 401k money so long as we have no major disasters.

It sounds like you have everything underhand and are well on your way. I doubt you need my advice. My only expertise is knowing how to live poor.


I'm really not sure why you are asking for advice here. I offered you some advice, and your answer boils down to "I've already got it all covered." This particular post makes it sound like you are in much better shape than it previously appeared. I sort of feel like I was set up here.


I think you are mixing apples and oranges. I did not ask for advice on this thread on the building a house issue. I neithered requested nor wanted advice on the issue of risks involved in building a house (not because I think the risks don't exist, but because I don't need advice on that particular issue). You wanted to give advice on an unasked issue. Fair enough. However, had you looked at my other posts you would have realize I've addressed this issue several times. (In fact, my membership has been extended twice because two of my threads on this issue became hot topics for the week). So, yes, I think I do have it covered on the construction risk front. But this topic wasn't about that. I was asking about whether I should eschew conventional wisdom and contribute to my 401k while still paying down debt. That was the issue I wanted suggestions on and you and several others were helpful on that topic.

I don't know if this posts says I'm in better shape or not. In one of threads on the building forum it was suggested that I should have enough retirement to replace something like 80% of pre-retirement income. If so, then $1.2 million won't come close, particularly if I don't factor in social security and DH's pension. So, my concern about retirement planning is most certainly genuine.



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Author: eatnbybears Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236710 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 6:22 PM
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<I know that many would say that I shouldn't contribute to the plan while we still have credit card debt.


Not me, I say ...save, save ... save.


Every dime you save now is "locked up"

Every dime you save now will compound from now .... on

It is a 401 K and will offer some tax relief

You are not going to save it unless you have it removed from your check before you get it.

"I'm not sure that I should lose 2 of the relatively few years left that I have to make contributions. "

Wise words ....

Put the money in the 401K and shave expenses on the other end to pay the CC's

Ideas

Do you get any Cable TV premium Channels? Cancel them

How many cards have balances? do they have any "automatic items" on them? "insurance, travel service charges, membership fees for God knows what you joined" .... cancel them

Roll as many balances on to one card, both names with disability coverage.

Sell something ...

Sell 1 car, buy a beater.

Coins, collectable's

Have a Tag Sale, big one .... if you can drop several hundred $$ on any debt .. God bless you ... get rid of a car payment ... blessed again.

Feeling rich is having a bill arrive in the mail, opening it, sitting down at the computer, going to the bank site and paying it ...... never even questioning if you have enough to cover it ..... you just know you do.

Bears

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236711 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 6:26 PM
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Gingko100 - Thanks. I have revised assumptions and plans based upon feedback from here. It is all helpful to me. I am truly grateful for the help and suggestions I've received here, even if I have debated issues with some. That kind of back and forth debate is helpful to me, if only to clarify what is really important to me.

Hohum - Yes, I want to get to the point where I can do catch up contributions. On the BTs, I have started to get offers for them again but am reluctantly passing them up. I just got my FICO (for one CRA anyway) to 701 and I am afraid to do anything that might lower my credit score since we will be getting a mortgage and I want it above 700. Even if I BT to an existing account, feedback I've read here suggests that it does lower FICO a little. Once we have a mortgage, I would certainly do it.

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236713 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 6:48 PM
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Feeling rich is having a bill arrive in the mail, opening it, sitting down at the computer, going to the bank site and paying it ...... never even questioning if you have enough to cover it ..... you just know you do.

Bears

You are so right on this. Last month, every time I used the Amex card (which we use for daily spending) I put the money for it in a separate savings account. In the past, to pay it I always had to float it during the next month, having to use Amex for daily spending so I would have enough cash to pay the prior month's bill.

Well, no more! I just got the bill. (Actually I haven't gotten it in the mail but it is on the Amex web site). It was a huge bill because it included a large vet bill and the notebook computer we bought our son. Anyway, I've already paid it in full. It really felt great because it means I wanted to stop using Amex this month, I could!

I did auction my son's old Alphasmart (since he didn't need it any more as we got the notebook computer) and a laser mouse that I didn't really like. Those two auctions only (mostly the Alphasmart) after fees covered 37% of the cost of the notebook computer! I am going to list some other things as well and I believe it will end up covering almost all of the computer cost.

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Author: rosietomato Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236714 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 8:09 PM
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>It sounds like you have everything underhand and are well on your way. I doubt you need my advice. My only expertise is knowing how to live poor.
>
>>
tmeri,
Speaking for myself, this list provides me with suggestions and thoughts about dealing with credit debt and saving. People sharing their walk from the pit of debt to financial freedom has been extremely inspiring. I also love the stories of stupid things people do that get them into credit dodo to begin with. Those stories make me feel less like a complete idiot in that I'm not the only one who has made stupid choices in my financial life.

I feel some hostility in your statement about only knowing how to live poor. This makes me sad. Big salaries or little salaries is not what this list is about, it's about all of us walking the same path and helping each other along the way. What can't we get back to cheering the successes and providing a shoulder to cry on when things wabble and providing newbees with some suggested directions in an upbeat and supportive way?

Please?

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Author: tmeri Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236715 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 8:39 PM
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I feel some hostility in your statement about only knowing how to live poor.

You are reading it in, then, because I'm not hostile about it at all. See next:


This makes me sad.

Don't be sad for me. I consider "knowing how to live poor" to be one of my greatest skills in life. What I mean by that is that I know how to live on very little money. I can exist quite happily on very little money. I've had large incomes, and I've had tiny. Knowing how to live poor has kept me happy in either case. I think that's something you'd affirm, yes?






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Author: lilacinn Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236716 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 8:47 PM
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Can you sell the land and find an affordable existing house elsewhere?

Do you have long-term disability insurance should your best-case-scenario earning projections get derailed by serious illness?

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Author: rosietomato Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236717 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 8:52 PM
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>Knowing how to live poor has kept me happy in either case. I think that's something you'd affirm, yes?
>
Yes, and I'm sorry that I misunderstood your comments. The two dimentionality of the written word does thta sometimes. Learning how to live poor is a valued skill. Still haven't got that down myself quite yet. I still have some pesky wants that seem to be stuck in my needs column :(


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Author: yddeyma Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236718 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 9:05 PM
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I think you pretty much answered your own question with this:

I did make them for a couple of years then decided that I should stop contributing until we had debt paid off. But, guess what? Debt didn't get paid off and I didn't make contributions.

The statement above leads me to believe that you need to be saving in a retirement account.

If it were me, and I were in your situation, I would ABSOLUTELY be maxing out my retirment accounts.

At this point in the game, you really shouldn't be worried about what's going to 'save' you the most in interest. You know, the old argument about why bother to save if you're only going to earn 8% on your money when you have debt sitting there at 20%. But, in my opinion, you're beyond this stage. You are going to be retiring SOON, and you will need money to do that. Plus, lets say you do put all your money towards debt and mortgages and everything else. So, you retire and have no debt, but no savings either. I don't think it will work out very well like that.

Plus, if your debt is at reasonably low rates (fixed rate mortgage type debt or 0% or other low interest credit card debt), you'll earn more anyway with savings. Why not try to plan to save as much as possible so that your debt gets paid off just when you're about to retire. Then, your cash savings will be as large as possible, and you'll be debt-free in retirement.

Just so you know, I'm very young and not anywhere even close to retirement, but I think this is what I'd do if I were in your shoes.

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Author: eatnbybears Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236719 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 9:46 PM
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Are you sure about that? Most pensions come with a joint option.



I replied to this on the Retire well board

http://boards.fool.com/Message.asp?mid=24565552


Bears

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236720 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 10:15 PM
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Can you sell the land and find an affordable existing house elsewhere?

Lilacinn - so that this thread doesn't digress into that topic here is the long thread on that issue that already exists.

http://boards.fool.com/Message.asp?mid=24521161&sort=whole

Short answer - we have looked and found nothing suitable.

I do not have long-term disability insurance. DH has it through his work.

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Author: tmeri Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236723 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 11:29 PM
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I still have some pesky wants that seem to be stuck in my needs column :(


What a delightfully turned phrase! Thank you for your comments.




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Author: Glockenspieler Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236724 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/9/2006 11:41 PM
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Hello dm,

I have been lurking and following your posts. I can't remember if you use something like Quicken to follow your finances, but these programs are very helpful for clarifying your overall financial situation.

To make a good decision regarding your 401(k), it might help using Excel (or paper and pencil) to figure out your net worth, with all of your assets and liabilities. There is nothing like seeing those numbers in black and white. I actually do this every month, which is probably overkill, but it is a good tool for disciplining myself and keeping my eye on our financial goals. At some point it became far more entertaining to see those numbers go up than to go to Target (and that's when I began seeking professional help ... just kidding). When you have a firm grasp of the big picture, decisions about where to put the money become easier.

The recommended withdrawal rate in retirement is 4% of your savings. This will probably guarantee that you will not outlive your savings. If you start with 1.2 million, you will be able to withdraw $48000. The big question is, can you live on that (also considering your husband's pension)? Imagine a 3% inflation rate for the next 35 years and the meaning of $48000 in the year 2040. I recently recalculated how much we would need to keep our current lifestyle, and let me assure you it was not a pretty number. It was higher than I would have guesstimated, but there's no escaping the cold, hard numbers.

If you are using Quicken, you should be able to easily figure out what you spend each month. Take the expenses out that you won't have any more (college savings, hopefully credit card payoff, nanny), and the expense of your lifestyle becomes crystal clear ("you" in the general sense). I would be concerned that you may have to take care of one or more children later in life, but I can't tell from your previous posts how much assistance they might need.

Psychologically, a high salary can be a detriment to saving because there are so many ways to spend all that money. Also, a person is surrounded by others with a high standard of living and expectations go way up. I personally think that the best way to not spend all of the money coming in is to hide large chunks of it. I would have definitely blown through giant wads of cash if I didn't look in our checking account every week and think, "My G-d, there's nothing in there!" Out of sight, out of mind. A 401k really helps with that. You would get used to having 10% gone and not even notice (it would actually be even less painful because it wouldn't be taxed at your extremely high rate). Once your debt is paid off, you can squirrel away that money, too, and not even think twice about it because you've already gotten used to living on less.

You do have debt to pay off, but you only get one chance to save this money with such a large tax advantage. Your assets column could go up while your liability column goes down. I think that there would be a psychological advantage to that. Also, since you are becoming a better spender, you might still be able to throw the same amount of money at the debt while continuing the 401k contributions.

I wish you the best of luck.

GS

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236725 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/10/2006 3:04 AM
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Thanks, GS. I do track spending in Microsoft Money and have done so for years.

I have done some of the things you suggest. I think what is most difficult is some of the stuff that I am uncertain about or I'm not sure how it will turn out.

Looking at it very roughly and assuming retirement at the end of 2014 (probable for my DH, maybe even a year earlier him, likely I will work longer but for this purpose easier to choose a common date), I can project (in current dollars) an income that I can get to if we end up with $960,000 by then and if Social Security is still around and DH has his work pension and if we pay off our house by then. Some of these are difficult to know for sure. Will Social Security still be here in its current form? (My guess is that for DH and I it will be but will likely be entirely taxable). What will DH's pension be? I know now what it is projected to be based upon single life, but know the joint life option (which he will likely take) will be considerably less. And, of course, I know that current dollars will not be the same then. OTOH, I did my projections assuming our income remains static.

I do like the idea of keeping track of net worth...



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Author: Glockenspieler Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236728 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/10/2006 10:01 AM
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Hello dm,

As far as retirement needs go, I am in the "prepare for the worst" camp. Social security will probably be there, but with so many boomers financially unprepared for retirement, who knows if it will be there in its current form. "Guaranteed" pensions are also a crap shoot. Will your husband's company exist in 25 years? Even if he works at a very "safe" company like GE, for example, you don't know what could happen with their pension plans years down the road.

The 401k limit for you and your husband together is 30K/year. Really, on 200K/year, that should not be very painful, especially since it only makes a difference, after-tax, of 20K in your high tax bracket. My bet is that this money would disappear and you would readjust and STILL pay off your debt at almost the same rate because you are so motivated to do so. It would be highly energizing to see your assets go up a couple of thousand/month without agonizing over it. If you get in a *real* crunch, you can stop it for a while, but I'd bet you won't.

Food for thought :)

GS

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Author: mlk58 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236730 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/10/2006 11:16 AM
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We were in a position very similar to yours -- high income, tons of debt, not much retirement savings. We decided that retirement savings were a vital part of the whole picture, so we maxed out the 401(K)s the whole time, even though it meant the debt stuck around a little longer than it would have otherwise. Now that the non-mortgage debt is paid off, we are powering down the mortgage, because being mortgage-free is also a component of our retirement plan.

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Author: Jim2B Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236747 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/10/2006 6:54 PM
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I can fairly easily get us to 1.2 million based upon our current savings and 401k money so long as we have no major disasters.

In my own estimation of how much our family will need in retirement it comes to ~2x 1.2 million. Currently we live on a lower income than you and your spouse.

I'm not saying that you will need more, I just think this might bear some more scrutiny.

Jim

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Author: kaudrey Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 236801 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/11/2006 2:57 PM
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I've been thinking about that lately. I know that everyone seems to say that you need 80% of pre-retirement income.

-----------

Hi DM,

Not everyone says that! :)

What you need to cover is 100% of your expenses. That may seem obvious, but it is something that using the "% of income" method fails at miserably.

You can use what you have in Money as far as today's expenses, and then figure out where to adjust. This will be most accurate if you put in your gross income and the various deductions separately in Money, but even if you don't, you can adjust.

So, for example, for me, my current spending would look something like this;

Gross Income - 100%
Taxes etc - (25%)
401(k) - (12%)
Net pay - 63%
After tax savings - (18%)
All other spending - (45%)

So, I basically live on 45% of my income, including my mortgage. Including taxes, my expenses are 70% of income. In retirement, the mortgage will be paid off and I won't be contributing the 30% to savings. And, in theory, my tax rate will be lower.

To do my calculations for retirement, I use that 70% number - my actual expenses. To me, this gives me a conservative estimate because of the lack of mortgage/potentially lower taxes, and the fact that I'll be moving to a lower cost area. On the flip side, I have a pretty high travel budget built in in the first 10 years because that's my passion.

I guess my point is that it's a very personal calculation that will be different for everyone, but expenses (actual and projected) are a better gauge than income.

Karen
who would invest in your 401(k) now, too.


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Author: ccharlan One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 237218 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/17/2006 12:13 AM
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DeterminedMom,
I'm in the mid thirties and I'm in the 33% tax bracket. Instead of focusing on debt paydown in past years, I've been focusing on my 401(k) contributions. My IRA/401k balance is just about what your husband has today, so my theory in years past was to maximize the amount of 401(k) contributions, etc, to try to reduce my taxes.

Now here is my late night math session, if my logic is flawed, please let me know.

I'm going to assume that you contribute $10,000 to your 401k this year, instead of using that $10,000 to pay down non deductible debt with interest rates at 10%.

*Your adjusted gross income will drop by 10,000, which should knock $2800 (again assuming you are in the 28% bracket) off of your federal taxes, and this money should be in your pocket.

*Instead of paying the 10,000 to credit card debt, you'll pay an extra $1000 or so--it's too late to calculate compounding) in interest expenses.

I agree that this won't work for everyone, especially if you are in debt, and aren't blessed with having the higher income streams (yet)

A lot the advice about "pay down debt" first is good first advice that is right for 80% of the people.


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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 237220 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/17/2006 1:04 AM
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"I agree that this won't work for everyone, especially if you are in debt, and aren't blessed with having the higher income streams (yet)
"

Actually I'm in the 33% tax bracket so I think your point is even more valid.

BTW...what I ended up doing is that for the rest of this year I am withholding 5% from my salary. With the decrease in taxes it isn't all that much. Then the next raise that I get I plan to put all, or almost all of it to my 401k next year.

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Author: Adenovir Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 237259 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/17/2006 2:03 PM
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Sorry for the late reply, but my schedule doesn't always give me time to make a coherent response. You may get additional insight from the on the "Retirement Investing" board:

http://boards.fool.com/Messages.asp?mid=24537023&bid=100154

As I have posted, we are in debt pay down mode. At best it will probably take a couple of years to pay off credit card debt and car loan. I know that conventional wisdom is to stop non-matching 401(k) contributions until debts are paid.

Conventional wisdom isn't always right for every situation.

DH is in his late 50s and earns about 40% of our earned income. He has contributes 6% of his salary to his 401k all of which is 100% matched by his employer. Ultimately we would like to increase this but probably won't until we have paid off the credit cards. (While not relevant to this discussion, I might mention that DH will receive a traditional pension from his employer on retirement). He has about $155,000 in his 401k account.

You didn't mention how far his match goes. I would never turn down matching contributions. If he can contribute more and still get a full 100% match, then by all means, put in as much as you can. That's the only free lunch out there in the investing world.

I am in my early 50s and earn the remainder of our income. Each year my employer makes a profit sharing contribution which is not dependent on my contributing anything to the 401k account. That is, even if I contribute zero my employer still makes the contribution. This amount varies from year to year but for the contribution for last year was roughly 6.5% of my salary. I do not currently contribute to my 401k plan and have about $91000 in the plan.

I think as long as you have a payoff plan for your debt that would take care of it in a reasonable amount of time (and definitely before retirement or downshifting to part time work), anything extra could go into your 401k. Especially if your past experience has been that unprotected non-retirement money gets spent.

Given how close we are to retirement age, I'm not sure that I should lose 2 of the relatively few years left that I have to make contributions. So, I am inclined to start putting, oh, 4 to 5% into my 401k now even without having paid off all debt?

I did a quick calculation on your combined 401k's and came up with the following (assuming $250K combined annual salary, 10% returns, 4% inflation, 15 years to retirement):

Current Value of combined 401k : $246,000

Value in 15 years (in today's dollars):
-no additional contributions = $570,591
-DH's 6% plus 100% match =$782,297
-DH as above, plus your 6.5% profit sharing = $954,308
-all above plus 5% from you = $1,086,623

The actual difference between your current plan ($954K) and if you contribute 5% ($1086K) isn't all that huge. At a 4% withdrawal rate in retirement, it would give you an additional $5280/year of income.

As usual, the numbers don't always give the right answer. If you trust yourself to pay down the debt by forgoing the 401k contribution, then that's the right thing to do. If you don't trust yourself, then stash some in your 401k and work on your debt with the rest.

Adenovir




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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 237268 of 308362
Subject: Re: Should I make 401k contributions? Date: 9/17/2006 3:52 PM
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"The actual difference between your current plan ($954K) and if you contribute 5% ($1086K) isn't all that huge. At a 4% withdrawal rate in retirement, it would give you an additional $5280/year of income. "

Well, I am planning to increase this next year and work my way up to DH and I both putting the max amount including catch up.

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