Investment/Retirement Roth IRA Help

[spartyon8]

Long story short:

 

I used to teach in the Diocese of Chicago for a few years. When I left, they forced me to take my retirement and put it into a private account so I chose an IRA. It was a small amount of $10,000ish. I moved to a diocese in NC after that and have my separate retirement plan (403b) through them. I just received my IRA statement and it is sitting at $15,000 and I have not once added to it. It always just sat in the background of my finances thinking that there is nothing to do with it. I was wondering if I should be investing more into that IRA instead of letting it sit in the background. Based on my finances (Catholic school educator's small salary), I am able to play with maybe $100-$200 each paycheck (biweekly) and not notice much of a difference with day to day expenses. 

 

My wife and I have some pretty lofty dreams of our retirement given a conversation we had recently and then my statement came and it got me thinking. If any of you are smarter in this area I would love to hear some "free" advice.

[TOXIC]

Keep in mind free advice is usually worth what you paid for it.  That being said, there are some “givens” in financial planning.  First and foremost commit to save.  Do what you can afford. I would suggest you get with a financial planner for expert advice on the instruments you utilize.  I was extreeeemly lucky and was able to save through a 401k and the governments TSP.  My only regret now that I’m retired is not digging into the tax ramifications of drawing those funds out.  
 

[Tennessee Boy]

I can give you some free advice but I can’t guarantee it will be worth what your paying.😀

 

Depending on your income,  the amount of any IRA contributions that you can deduct on your taxes may be limited.   Taking full advantage of tax deductions and employer matching at work should be your top priority.   Once that is maxed out  it might make more sense to contribute to a Roth IRA instead of a traditional IRA.   Roth contributions are not deductible but future gains are.   Considering that tax rates will probably be much higher in the future,  Roth IRA are a sweet deal.

 

[Team9nine]

Along the line of others, any tax sheltered retirement vehicle should be considered as a viable option. I’d look first at how that existing money is being utilized/invested, and reallocate it, if necessary, into more appropriate options, especially if it’s just sitting in a “cash” or money market type account/fund. Beyond that, view it in terms of all other existing options you have at present, but if those are already being properly funded and you have extra monies, by all means start contributing to it within limits and get that thing growing 😎

[Rockhopper]

#1 Prioritize 401k first.  (403b, etc.)  to at the very minimum whatever your employer matches so you are not leaving money on the table.  This can lower your yearly tax obligation and you get tax deferred growth on investment gains.

 

#2 Contribute to an IRA.  I prefer a roth IRA to compliment a healthy 401k.  Taxed up front, but withdrawals in retirement are not taxed.

 

#3 If you still have left over funds after maxing out your IRA's, go back to step #1.

 

That's the general rule of thumb for retirement accounts.  But there is so much that goes into everyone's own personal situations, that it would behoove you to seek financial advice.  You need to know what your tax obligations are going to be after retirement to plan the best course of action.  This varies by state to state.  How old are you now? To what age are you paying a mortgage? Do you even want a mortgage in retirement?  How is your health?  How is your spouse's health? Do you need to consider funds for HSA/HRA's?  Did you have kids late in life that will need financial assistance after you retire? Do you want those funds for those kids to be taxed?  Do you have a trust?  Will you have other sources of income in retirement from investments such as rental properties or a side hustle?

 

There are many questions that need to be answered with a financial adviser to get the best advice on what you need to be doing with your money.

 

IF I were single, not married, no kids...I would focus on 401k first, then being debt free in retirement (mortgage, not necessarily cars), then a roth IRA, then an HSA, then a whole life or universal life life insurance policy that gains cash value to a certain term.  But I am also relatively young and have time to contribute to those various funds to be comfortable in retirement.

 

 

 

[spartyon8]

Thanks for your input gentleman! My extra cash typically goes to dinners out, extra activities with the family, etc. when we get "bored" or just feel like it. My wife banks all of her extras into savings. That is why I was saying $1-200 every other week probably won't be too noticeable for us. I also should have been more complete in my description, it is in fact a Roth IRA.

[Rockhopper]

14 minutes ago, spartyon8 said:

Thanks for your input gentleman! My extra cash typically goes to dinners out, extra activities with the family, etc. when we get "bored" or just feel like it. My wife banks all of her extras into savings. That is why I was saying $1-200 every other week probably won't be too noticeable for us. I also should have been more complete in my description, it is in fact a Roth IRA.

In my personal situation I would absolutely take full advantage of that ROTH.  And I would not put too much money into a personal savings account.  You should have enough fluid cash on hand to cover expenses (all expenses) for 3 to 4 months.  Once you get to that point in a personal savings account, your money is not doing anything for you, and you are missing out on a lot of growth potential.  You are only helping the bank.  IF something were to happen that you need fluid cash beyond that 4 months to cover expenses, that is when you start to utilize your money on investments such as HELOC's, cash out refinances, early withdrawals from various funds, etc.

 

Also, your "extra cash" for dinners, play things, baitmonkey, etc should be budgeted for just like a "normal bill".  After you consider that extra bill, then you can talk about left over cash and what to do with it.

[spartyon8]

I am currently 41 and the house is in my wife's name as she already had it when we got married. We have 11 years and some change left to pay on it. Our plan is to turn it into a rental property and she gets full pension with the state in 10 years (public school teacher). Health for both is good to great with nothing foreseeable. We do have 1 son but weren't planning on saving to leave anything. We want to enjoy our passions in retirement with opening a small event venue or such in the mountains. My wife is a great planner, hostess, server, extrovert, years of experience in the business before we met etc. and that truly is her strength. I am quite handy and enjoy building and creating. We were thinking of an old farm and rehabbing into a business. At this point, that is the dream not necessarily a reality and we know it. She opened my IRA statement the other day and asked what it was as I never really talked about it given how short of a time and I never put into it. This created a conversation with questions I couldn't answer so I thought I would reach out to the board as I know watching from afar has given great financial advice to those seeking to buy boats and discuss retirement. 

 

Does anyone know roughly the cost to talk to a financial planner would be for this type of thing? That might be something we pursue as our conversations about retirement are becoming more frequent. I also am going to look into what maxing out my 403b would do to our monthly finances. I would assume that might be a bigger change to my paycheck and monthly bills than the extra $100-$200 in play/fun/family money.

[Rockhopper]

Well that is another issue to consider with the home.  Being 52/3 years old and not having the tax benefits of a mortgage for another 10-12 years assuming you retire at 62 to 65 can be a whole different problem.  But then again at your age, IF you plan on using that home as a rental, and assuming you want to purchase another home to live in during retirement, I would make that a goal sooner than later.  Having 11 years left on that mortgage, I would assume you now have a pretty decent amount of equity in that home if you did not already tap into it.  IF the goal is to use that house as a rental, use your current equity to your advantage.  Make it go to work for you.  Cash it out soon (now to 5 years down the road), buy your retirement home with that equity, and let your renters pay your mortgage(s).  Depending on your situation and home costs and equities...hell, you may be paying less per month owning two homes than what you are paying now on one...assuming you keep that place rented and have that cash flow coming in.  Being 70 or 80 years old and paying a mortgage is not going to be easy.  Maybe you have the means to invest in a new property on a 15 or 20 year term instead of the traditional 30?  Personally I would not want to pay on a mortgage in retirement for any longer than necessary.

[Bird]

What I did was a cowardly move.

I married an investor/ financial advisor 😁

I'll show her the original post later this evening.

[Rockhopper]

You should pay about 1% for total assets under management to a financial advisor. Consult costs can vary, but should be an hourly rate of a couple hundred bucks give or take.

[Rockhopper]

Another thing I did not mention, any high interest debts should be your absolute #1 priority above all else, even retirement savings.  Example is a credit card.  If you have thousands on a credit card, pay that off before you worry about saving.

 

Then there is the 50/30/20 rule, which is generally a safe way to manage your finances.

[spartyon8]

I sent a message to our business manager and our account with Lincoln Financial includes consultations like this and I already have one schedule for next week. I learned the hard way about credit cards years ago! It stinks that a lot of the world today only accepts them. 

[Rockhopper]

You 100% should be using a credit card for almost everything you can buy with it.  Managing that credit card correctly is the key.  I do not even own a debit card anymore.

[GReb]

Debt is not inherently bad. However it takes a plan and discipline to capitalize on it. 
 

Basic example is if you have a loan at 3% interest, don’t pay it off before term. Instead use the excess money to earn double or triple the return. Or if you can finance a property for $1k a month and rent it out for 1.5k turning a profit until paid off
 

Also credit cards are smart. They are safe and secure because they are federally backed whereas a debit card is not. The benefits/rewards can earn you money. My family takes several vacations a year that are fully covered by points. Flights, hotels, rental cars, etc. We’ve haven’t ever paid a dime in interest but once again it takes discipline and a plan. 

[gim]

1 hour ago, GReb said:

They are safe and secure because they are federally backed whereas a debit card is not.

 

Not true.  My debit card is a Mastercard through my bank which is FDIC insured, and therefore, federally backed.  I have the exact same fraud protection on it that I do on a credit card.

 

The one item I would recommend is that if your employer provides a matching retirement contribution, you should at least put that much in.  Otherwise its like missing out on free money.

[MN Fisher]

5 minutes ago, gimruis said:

Not true.  My debit card is a Mastercard through my bank which is FDIC insured, and therefore, federally backed.  I have the exact same fraud protection on it that I do on a credit card.

I have two checking accounts with debit cards - one is the joint account on a Visa, the other is my personal 'play money' on a Mastercard. What Gim says is true, and it's happened to me...the cards are protected against fraud just like a credit card.

[Bird]

The point made regarding credit cards are also valid.

Example would be, Bass Pro and Amazon who offer points rewards.

Wife orders Christmas gifts while I lurk in the background and pay nothing for baits. 😂

Financial discipline is the key in a world of finance.

[Rockhopper]

I, like @GReb, use credit cards for travel benefits.  I have one for an airline, and I have one for a large chain of hotels.  Rarely, if ever, do I vacation and not have my flights and hotel paid for.  I usually take one big trip a year with a family of five.

 

If travel is not your thing, I would choose a credit card with a flat 2% cash back.  Don't get caught up on the revolving 5% cash back deal that the benefits change every month or quarterly.  You will come out ahead with the 2% on everything deal.

 

My hunting partner uses a Cabela's card quite a bit.  He gets a lot of freebies for camo's, bow accessories, etc.  Even went on a guided trip once on Cabela's dime using his points saved.

[gim]

16 minutes ago, Rockhopper said:

I would choose a credit card with a flat 2% cash back

 

That's what I use.  Not a big traveler guy.  Already do enough of it for work.

 

On the subject of credit cards, bear in mind that every time you start a new one, it affects your credit rating.  Also, a lot of people are buried in credit card debt.  Don't be one of them.

[Rockhopper]

Opening a credit card can temporarily hurt your credit, yes.  Not recommended before making a big purchase or applying for a loan.  But over time obviously will greatly improve your credit if used correctly.  What dings your credit more than opening one is actually closing one. So choose your credit card benefits wisely.  I wouldn't have more than two or three tops. There is a balance between using credit cards correctly vs having too much spending potential when it comes time to apply for a home loan etc. Also, don't open a credit card and never use it. That's bad too. 

[Rockhopper]

And take my advice with a grain of salt. I do not work in finance. Just learned a lot over the years. They really should teach this stuff in high school.

[MN Fisher]

5 minutes ago, Rockhopper said:

They really should teach this stuff in high school.

They use to - Personal Finance class when I was attending back in the 70s

[WRB]

Professional retirement investment counseling is free. 
Tom

[padlin]

You sound like bright folks, if you don’t know much about investing I’d suggest you learn how and do it yourself. FWIW, a family member just started with a financial planner, $300 an hr., they’ll also manage it for .75% if wanted. A Fee only advisor is generally the suggested route.
 

A couple good basic books.

The Four Pillars of Investing

The Bogleheads Guide to Investing
 

“Investing is simple, but not easy” Warren Buffett