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FightOnTrojans

General Questions (new To Retirement Planning)

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Hello,

 

I just have a few general questions. My wife and I just began our careers at two separate school districts, both offering pension and 403b and 457b. In doing some research, it appears that the 457b is preferable to the 403b. My district (LAUSD) goes through Valic, and in reading other posts, I've surmised that the Vanguard Extended Market Index suggested by "sschullo" would be the way to go. My wife's district allows for a variety of vendors, and in doing research, I've found that OCTFCU charges no fees for members. Basically, I just wanted to get some input to determine if I'm heading down the correct path or not. I was thinking about starting each of us off with $500/month into the individual 457b's (as well as $500/month each of us into a 529 for our daughters). With our new jobs, we've tripled our income and I don't want to get used to spending that much before we put aside some of it for retirement and college (I used to work as a financial aid counselor and met too many families in that situation). Any subsequent raises I was thinking of splitting 50/25/25, with 50 going to our spending, 25 to retirement, and 25 to college. These are just general numbers to start off with, and I just wanted to see if I'm on the right path. Thanks for any help you can provide.

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Hi Fight,

Congratulations on you and your wife's new positions. Your thinking about saving instead of spending some of those big bucks that are now coming in is smart. But you did not stop there, you are also thinking about future raises and to not spend that too. You are clearly different and in the right place on this site. We are all a bunch of fugile and efficient investors who think about the future.

 

You seem to be on track to me. It is interesting how much you can save and invest over the years and have enough to fund your kids education and have a decent retirement plan. It can be done.

 

Regarding LAUSD's 457, there are two other Vanguard funds and a Dreyfus Bond fund. Those are the cheapest funds, no commissions or high fees. I wrote an article in the May 18th, UTLA newspaper about the cheapest funds on both the 403b and the 457. Click here. and turn to page 18.

 

I am assuming you know something about how Vanguard, the mutual fund industry and the stock market work. If not, you need to educate yourself before doing any of this.

If you have any other questions, just post.

 

Good luck,

Steve

 

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How old are you and you're wife? An advantage of 457 plan is distributions can be obtained if you "separate from service". No age 59.5 criteria like 403b. I have done 457, my wife 403b, and Roth IRA's. I am disabled, and right now easy acces to tax free Roth assets is saving me. I have 2 kids in college (expensive schools). My advice, pile up as much as you can in multiple plans( I love Roths, wish I did more). Having too much $ is a great problem. Right now even w/ market lows I have a total of about $700,000. Study" Rule of 72", google it. Time is your ally, try and get 8-10% returns over long term,my 457 got 7.9%, wife's 403b 9.8% in 2007. Both portfolios are 68% stock funds, 32% bond funds. I am age 57, wife 55. I am a fan of actively managed funds, don't own any indexes. Study managers and their performance. Don't panic when market is down. I get several publications. Strongly suggest: Morningstar Fundinvestor, Eric Kobren's Fideity Insight. These are very helpful. Yes, they are expensive, but they pay me back wonderfully, AND they are a deduction(investment publications) on taxes(long form). Best wishes

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Steve and Walthomc, thank you both for your replies.

 

Just to provide some background info. I'm 31, the wife is 28. We haven't really discussed what our retirement plans will be just yet, so I figured we better start thinking about it soon. Essentially, we both want to retire in our late fifties, if possible. By then, both daughters (7 & 2) *should* be done with undergrad and post-grad. I've set up an appointment for next week with OCTFCU to discuss the options they offer. So far I've figured out to look for items with low/no fees, and stay away from insurance investments. What else should I be looking for or asking about when talking with these people? Again, thanks for your help, and I'll continue doing my homework.

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Steve and Walthomc, thank you both for your replies.

 

Just to provide some background info. I'm 31, the wife is 28. We haven't really discussed what our retirement plans will be just yet, so I figured we better start thinking about it soon. Essentially, we both want to retire in our late fifties, if possible. By then, both daughters (7 & 2) *should* be done with undergrad and post-grad. I've set up an appointment for next week with OCTFCU to discuss the options they offer. So far I've figured out to look for items with low/no fees, and stay away from insurance investments. What else should I be looking for or asking about when talking with these people? Again, thanks for your help, and I'll continue doing my homework.

 

 

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Watch out for annual plan expenses and fees. Also look at fund expense ratios, compare to industry norms. Bottom line: index funds have lower expense ratios than actively managed funds. But some active funds really justify their their expenses thru superior returns. Extreme Example: CGM Focus, Kenneth Heebner knows his stuff and posts results to prove it. On the opposite side, Johnathan Bogle(Vanguard fame) is the godfather of indexing, loves it. S&P 500 numbers for past 10 years(averge annualized) have been tough. My bias is for active management(by human beings) I have however had superior returns from funds that used quantitative analysis (computer driven buying and selling). Quant funds are tough to find . Reserve them for your ROTH after you do some exploring. Asset allocation will be key to your success. It's a complicated topic too long for this reply. Check it out. And oh yeah, w/ small kids you need plenty of inexpensive Level Premium Term Insurance. A long time ago I learned the expression" buy term and invest the difference". I have followed this and been very succesful. Good luck!

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But some active funds really justify their their expenses thru superior returns. Extreme Example: CGM Focus, Kenneth Heebner knows his stuff and posts results to prove it. \

 

Hi Walthomc,

Couple of comments.

 

There is a huge problem with this statement. Sure Kenneth did great during the time period you mentioned. The problem is knowing Kenneth ahead of time. Had I known his fund would have done as well as you say he did, I would have bet the farm on it. You cannot nor will you recommend Kenneth's funds for the future. That's all we have now. So the idea that "SOME" managed funds earn their expenses thru superior returns is bunk as far as planning. We cannot know ahead of time.

 

Indexing is the key to diversification, low fees and simplicity. Managers are a big risk for us.

 

Computer driven trading is terrible, think of all the capitical gains, trading costs and other expenses the investor has to pay and you don't have any control.

 

Everything else you wrote, I agree.

 

Steve

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Steve and Walthomc, thank you both for your replies.

 

Just to provide some background info. I'm 31, the wife is 28. We haven't really discussed what our retirement plans will be just yet, so I figured we better start thinking about it soon. Essentially, we both want to retire in our late fifties, if possible. By then, both daughters (7 & 2) *should* be done with undergrad and post-grad. I've set up an appointment for next week with OCTFCU to discuss the options they offer. So far I've figured out to look for items with low/no fees, and stay away from insurance investments. What else should I be looking for or asking about when talking with these people? Again, thanks for your help, and I'll continue doing my homework.

 

 

 

Hi FightOnTorjans,

 

The information you are getting from the others today is really good. But if I woke up in your shoes this morning. This what I would do first before beginning an investment program. Here is what I would begin to do.

 

If you have these kinds of debts below.

 

Make a list of your families' debts.

 

1. Credits cards

2. Car loans

3. Student loans

4. House loan

5. And any other debts

 

Add them all up and begin a Debt Snowball. This is what Dave Ramsey Show would say to you if you have a lot of debt. Pay off the smallest debt first then roll that payment into the next debt. You get the idea.

 

Next build up emergence fund of six months worth income. (Park the funds in market account at Vanguard)

 

Get a written budget down on paper (bring your wife into this process) You guys are like two CEOs of your company house hold. Communication is key to winning at the game of money.

 

Once everything is paid off but the house. Start to fund Roth IRAs at Vanguard. One for yourself and the other for your wife. Vanguard has low cost funds and lots of choices to pick from.

 

After you have your IRAs funded, look at your employers plans to fund. (403b7/457 plans)

 

Take some CalSTRS retirement workshops classes. You are never too young to begin to learn about your retirement benefits. Please make sure your wife attends the workshop with you. She needs to understand her benefits as well.

 

I would go see a CalSTRS counselor after I have attended a retirement workshop. See if you can increase your service credit time in STRS system.

 

Go to library and check some books on personal finance.

 

You have put yourself through college to have a better standard of living. It is time to begin to learn how to manage your income. You have started this process by asking good questions.

 

 

 

Good Luck,

 

jyork

Redding, Ca

 

 

 

 

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Guest Sierra

How old are you and you're wife? An advantage of 457 plan is distributions can be obtained if you "separate from service". No age 59.5 criteria like 403b. I have done 457, my wife 403b, and Roth IRA's. I am disabled, and right now easy acces to tax free Roth assets is saving me. I have 2 kids in college (expensive schools). My advice, pile up as much as you can in multiple plans( I love Roths, wish I did more). Having too much $ is a great problem. Right now even w/ market lows I have a total of about $700,000. Study" Rule of 72", google it. Time is your ally, try and get 8-10% returns over long term,my 457 got 7.9%, wife's 403b 9.8% in 2007. Both portfolios are 68% stock funds, 32% bond funds. I am age 57, wife 55. I am a fan of actively managed funds, don't own any indexes. Study managers and their performance. Don't panic when market is down. I get several publications. Strongly suggest: Morningstar Fundinvestor, Eric Kobren's Fideity Insight. These are very helpful. Yes, they are expensive, but they pay me back wonderfully, AND they are a deduction(investment publications) on taxes(long form). Best wishes

 

 

walthomc:

 

It goes without saying that we all wish you well!

 

Having said that, your post brings to mind that before anyone commits money to an investment they must have in their mind's eye the fact that doing nothing...remaining in cash... yields 5 percent and then decide either to remain in cash or invest. You and your wife decided to invest. So when we subtract 5 percent you got 2.9 percent while your wife got 4.8 percent: Q.: Was the game worth the candle?

 

Peace and Hope,

Joel L. Frank

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The decision to invest in a diversified portfolio vs. "staying in cash" was absolutely worth it. I'm not a timer. It is a big spread from a 5% cash portfolio to 9.8% on my wife's 403b. Apply the Rule of 72 and you will see how much longer 5% money takes to double vs. long-term diversified portfolio returns. Yes my 7.9 on my 457 didn't "shoot out the lights". But vs. 5.5% for S&P 500 and 11.2 for EAFE, I'm happy . And my portfolio volatiltiy was nearly 1/3 less due to infusion of bond funds. Last year(2006) my portfolio returns were just under 14%. Yes, 2007 was not a super year for most equities and 2008 may even be tougher, but I'm gonna be there dollar cost averaging in. Cash @ 5%might be harder to find in future w/ trend toward lower rates in 2008. Also, how did Harvard U. get nearly 35 billion in their endowment? Certainly it was not by being in cash. Diversified porfolios , hiring good management and oh yeah, having some index funds got them there.

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The decision to invest in a diversified portfolio vs. "staying in cash" was absolutely worth it. I'm not a timer. It is a big spread from a 5% cash portfolio to 9.8% on my wife's 403b. Apply the Rule of 72 and you will see how much longer 5% money takes to double vs. long-term diversified portfolio returns. Yes my 7.9 on my 457 didn't "shoot out the lights". But vs. 5.5% for S&P 500 and 11.2 for EAFE, I'm happy . And my portfolio volatiltiy was nearly 1/3 less due to infusion of bond funds. Last year(2006) my portfolio returns were just under 14%. Yes, 2007 was not a super year for most equities and 2008 may even be tougher, but I'm gonna be there dollar cost averaging in. Cash @ 5%might be harder to find in future w/ trend toward lower rates in 2008. Also, how did Harvard U. get nearly 35 billion in their endowment? Certainly it was not by being in cash. Diversified porfolios , hiring good management and oh yeah, having some index funds got them there.

 

 

Harvard as a tax exempt entity doesnt pay taxes and has its 35B in hedge funds and offshore investments not available to individual investors, not index funds. It also pays its in house investment mgrs more $ than most CEOs make. In 2005 2 managers were paid $25m each.

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sschullo, et al,

 

Thank you all for your help. Sorry it took me so long to reply and thank you. I got sidetracked and, well, you all know how that goes.

 

jyork,

 

Yes, we are in the middle of debt snowballing as we speak. Great advice, and we hope to be debt free soon. Once we are free of those shackles, then we'll begin saving for retirement.

 

Again, thank you all for the great advice. I hope to become a regular here.

 

 

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Hi Fight,

Welcome back. It only took you 3 months. So many folks come here and find out that this might be lot of work and they get "distracted". Thats what the TSA wolfs love and profit from--those distractions. When the hypothetical educator reaches 59 years old, they start thinking about planning for retirement and find out again what they learned and forgot 30 years prior and ask with a blank face: "What hasn't anybody told me this before!!!!?"

 

Just some unsolicited advice; don't put this issue on the back burner. You will get burned if you let somebody else manage your 403b/457b money while you are "distracted". We have all been through this, believe me. Stick around and learn. Its not that hard either.

Best wishes,

Steve

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Hi Fight,

Welcome back. It only took you 3 months. So many folks come here and find out that this might be lot of work and they get "distracted". Thats what the TSA wolfs love and profit from--those distractions. When the hypothetical educator reaches 59 years old, they start thinking about planning for retirement and find out again what they learned and forgot 30 years prior and ask with a blank face: "What hasn't anybody told me this before!!!!?"

 

Just some unsolicited advice; don't put this issue on the back burner. You will get burned if you let somebody else manage your 403b/457b money while you are "distracted". We have all been through this, believe me. Stick around and learn. Its not that hard either.

Best wishes,

Steve

 

 

Exactly what I was thinking. I was spurred on again by my mother, an 18+ year veteran of LAUSD who set up some TSAs a long time ago, and has no idea what they are, where they are, what they are worth, etc. The son of a friend visited her a few weekends ago and tried to talk her into cashing them all out and investing the money (after a few *minor* penalties and fees) with his firm. Something didn't smell right, and things I had read here and on other boards told me that it was a bad idea, so that is what I told her. So now she's asking me what to do with her TSAs, and, well, here I am again. Looks like I have a lot of reading to do. Again, thanks for the help.

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