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jmg66

Should I Increase My 403b In This Market?

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Hi,

This is my first time posting and don't know anything, sadly, about finances but I am trying to learn. I appreciate any feedback. Here goes:

I'm about five years away from retirement, single. Sold my house two years ago and put the $250,000 in an online bank with @ 5% interest. I was renting, thought I might eventually buy a condo and wanted the cash available (I hate debt). At tax time I was hit hard and decided to look into some different options.

 

In the fall I decided I'd live mostly off my savings and began to increase my 403b investments so I'd have less taxable income. I only had $30,000 in my Fidelity 403b so for the upcoming year I increased to max withdrawal, $20,500, planning to have most of it taken out in the Jan-June paychecks. Also I decided to switch to the Freedom 2025 Fund since I read it's a good choice for novices and would give me a higher return even though I'll be retiring sooner. Now I'm losing money.

I want to rethink this plan and need some advice and definitely some perspective. Should I take less out and put the future earnings back in the bank? Keep the plan but take less out now and more later in the year? Switch funds?

Thanks

 

 

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Hi,

This is my first time posting and don't know anything, sadly, about finances but I am trying to learn. I appreciate any feedback. Here goes:

I'm about five years away from retirement, single. Sold my house two years ago and put the $250,000 in an online bank with @ 5% interest. I was renting, thought I might eventually buy a condo and wanted the cash available (I hate debt). At tax time I was hit hard and decided to look into some different options.

 

In the fall I decided I'd live mostly off my savings and began to increase my 403b investments so I'd have less taxable income. I only had $30,000 in my Fidelity 403b so for the upcoming year I increased to max withdrawal, $20,500, planning to have most of it taken out in the Jan-June paychecks. Also I decided to switch to the Freedom 2025 Fund since I read it's a good choice for novices and would give me a higher return even though I'll be retiring sooner. Now I'm losing money.

I want to rethink this plan and need some advice and definitely some perspective. Should I take less out and put the future earnings back in the bank? Keep the plan but take less out now and more later in the year? Switch funds?

Thanks

 

 

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WElcome

 

Your questions has many twists and turns to it. Hope I am not missing the boat with my response!!

 

If I were you I would invest the large chunk of change in a low cost tax efficient mutual fund and forget about it for five years or more. Over time it could double maybe in seven years. Don't worry that it is currently losing money. Day to Day stock fluctuations can be scary but longer term they usually go up beyond what you are getting in a money market.

 

I would just rent the next five years. I don't see the housing market being a very good investment anytime soon. While renting I would continue maximizing my 403B contribution if you could do it. That would further

lower your taxes.

 

Once retired I would analyze my finances. Could you live on your defined benefit plan? At that point you might

wish to sell a portion of your stocks to put down a good down payment on a condo.

 

 

I think you have the opportununity to double your money in the stock market. I would invest it and forget it for 5-7 years. You may end up better off that way.

 

 

Tony

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On the other hand you might be better off using the money to by your retirement condo now since prices are now depressed. It all depends were you plan on living once you retire.

 

Personally, I would bank as much as I could of that money for as long as I could get away with it and watch it grow and live off my salary in a frugal manner.

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WElcome

 

Your questions has many twists and turns to it. Hope I am not missing the boat with my response!!

 

If I were you I would invest the large chunk of change in a low cost tax efficient mutual fund and forget about it for five years or more. Over time it could double maybe in seven years. Don't worry that it is currently losing money. Day to Day stock fluctuations can be scary but longer term they usually go up beyond what you are getting in a money market.

 

I would just rent the next five years. I don't see the housing market being a very good investment anytime soon. While renting I would continue maximizing my 403B contribution if you could do it. That would further

lower your taxes.

 

Once retired I would analyze my finances. Could you live on your defined benefit plan? At that point you might

wish to sell a portion of your stocks to put down a good down payment on a condo.

 

 

I think you have the opportununity to double your money in the stock market. I would invest it and forget it for 5-7 years. You may end up better off that way.

 

 

Tony

 

 

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WElcome

 

Your questions has many twists and turns to it. Hope I am not missing the boat with my response!!

 

If I were you I would invest the large chunk of change in a low cost tax efficient mutual fund and forget about it for five years or more. Over time it could double maybe in seven years. Don't worry that it is currently losing money. Day to Day stock fluctuations can be scary but longer term they usually go up beyond what you are getting in a money market.

 

I would just rent the next five years. I don't see the housing market being a very good investment anytime soon. While renting I would continue maximizing my 403B contribution if you could do it. That would further

lower your taxes.

 

Once retired I would analyze my finances. Could you live on your defined benefit plan? At that point you might

wish to sell a portion of your stocks to put down a good down payment on a condo.

 

 

I think you have the opportununity to double your money in the stock market. I would invest it and forget it for 5-7 years. You may end up better off that way.

 

 

Tony

 

 

 

Thanks for taking the time to respond to my email. You've given me lots to think about.

One question, is a low cost tax efficient mutual fund the same as the Vanguard 30 mutual fund? or is this another type of mutual fund?

Thanks again,

jmg

 

 

 

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WElcome

 

Your questions has many twists and turns to it. Hope I am not missing the boat with my response!!

 

If I were you I would invest the large chunk of change in a low cost tax efficient mutual fund and forget about it for five years or more. Over time it could double maybe in seven years. Don't worry that it is currently losing money. Day to Day stock fluctuations can be scary but longer term they usually go up beyond what you are getting in a money market.

 

I would just rent the next five years. I don't see the housing market being a very good investment anytime soon. While renting I would continue maximizing my 403B contribution if you could do it. That would further

lower your taxes.

 

Once retired I would analyze my finances. Could you live on your defined benefit plan? At that point you might

wish to sell a portion of your stocks to put down a good down payment on a condo.

 

 

I think you have the opportununity to double your money in the stock market. I would invest it and forget it for 5-7 years. You may end up better off that way.

 

 

Tony

 

 

 

Thanks for taking the time to respond to my email. You've given me lots to think about.

One question, is a low cost tax efficient mutual fund the same as the Vanguard 30 mutual fund? or is this another type of mutual fund?

Thanks again,

jmg

 

I also have a Variable Annuity from Vanguard. I put $70,000 in ten years ago and now it's at $108,000 (down from $114 in the last couple weeks). Does it make sense more $ in there? I thought of that when you said 'forget about it' since that's what I did with this.

I find it hard to read, or even think about financial stuff. That's why I like like this forum approach: personal, specific and quick....

Thanks Tony and anyone else who takes the time to respond.

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You seem to have forgotten that you have 108,000??? You see, investing it and forgetting about it works doesn't it?

 

 

So you have alot more money than you even realized. Any Index fund would be a tax efficient fund pretty much. What that means is they don't pay out huge ammounts of dividends and capital gains each year so you won't have to pay taxes on it as much

 

I think thats where you went wrong with the money market. You did pretty good at 5% interest but you soon found out the taxes made the investment a tough swallow because interest is taxed as income. You probably owed money to the IRS.

 

Call vangurd and talk to a rep about your nest egg and how you would like to put the money from the sale of the house in a tax efficient investment. I am sure they can help you.

 

Thery also offer financial retirement services for about $200.00 if I remember correctly. Its worth it.

 

You are sitting on a substancial amount of money. Put it to work and forget about it. In five years the stock market will probably power to 16,000 and you will make some money,

 

Continue contributing to your 403b if you can. If you can live frugally in the next five years and continue

renting while continuing to save and keeping yourself fully invested I think you have the opportunity to double your money by then.

 

Just a word of advice. When you call Vanguard ask them to evaluate your diversification. In other words make sure you are not putting all your money in the same assett class. Also make sure you have atleast 20% of your money in international stocks and some in bonds too as well as all other domestic classes

like large cap, mid cap, and small cap.

 

Its hard to give accurate advice in a forum, but I wouldn't tell you anything I wouldn't do myself. Once you retire you will have a nice problem to have, how to use all that dinero!!

 

Tony

 

 

One other thing. You seem to be watching your money values too closely. Hey I am down at the moment over 100,000!! Am I worried? Nope. Now is the time to buy buy buy. Don't fret. The market goes up and it goes down. Over time it always go up. People who sell out of fear hurt their performance. You cannot predict what the market will do. Staying fulling invested gurantees you will not miss the next upturn.

 

Tony

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Oh!

 

I woke up this morning and I had a dream I needed to tell you this. You are sitting on a large junk of cash from the sale of your house.

 

Don't let an advisor know about this or they will stalk you to the end of the earth. Its a big commission item and they will take advantage so beware.

 

 

Tony

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Oh!

 

I woke up this morning and I had a dream I needed to tell you this. You are sitting on a large junk of cash from the sale of your house.

 

Don't let an advisor know about this or they will stalk you to the end of the earth. Its a big commission item and they will take advantage so beware.

 

 

Tony

 

 

 

I will definitely give Vanguard a call. It's good to get a seasoned perspective

on investing.

Thanks for your time and sleep well.

jmg

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JMG,

 

Whenever you read the comments from the board do NOT go out and act upon it even if it's a good one. Only you know who you are and how you are with your hard earned money.

 

Before you do anything...Sit down with a qualified planner. When you speak to him/her for the first few minutes you can generally get an idea if he/she has your best interest....

If any investment vehicle comes up in the first few minutes, walk...no run!!!

The first meeting should be about your financial health...What you have, what you are doing, how much you are spending, etc...etc....Then maybe the second meeting, he'll draw out a plan for you..That's why you pay him/her the big $$$...

 

From the information you have given, may I suggest:

 

condo:

-buy the condo if you plan on staying there for 5-10yrs. Say you rent $1000/month..

That's almost $120K in 10 yrs down the drain and no equity...

 

Afterwards,f you decide to move, you may want to rent it. Generally you buy a house/condo to live not to flip it...Again, it all depends on you...

 

$$ from sell of home:

-if you do not need the money in 5 yrs...take a look at a bond going out 5-6 yrs thats AAA and insured or even a MUNI...again we don't know your financial health...sit down speak with a qualified planner...

 

Hope this helps...Again, sit down and speak to someone who really wants to help you...

 

Good Luck!!

 

 

 

 

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Wealthbuilder

 

I have no issues with your recommendations. A fee only advisor should be her choice.

 

I only recommended renting because I don't know where she lives or where she plans to move. I also don't know much about her housing market. Real estate is a long term investment. I am not sure its wise for her

to buy a condo if in 5 years she plans on moving. I don't usually advocate renting but sometimes it makes sense.

 

If you buy a condo now youmay be doing the right thing but who knows. I know in our area condo values are falling. Perhaps a good time to buy maybe not.

 

JMG. I am only giving you my personnel opinion. I agree with wealthbuilder that you should thoroughly investigate your options.

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jmg66,

 

I agree with the original comment that your situation has many "twists and turns". None of us knows your full situation and even if we did, we should just be consulted for ideas or where to get further info. Here are the things that struck me about your original post:

 

1. Were you eligible for and, if so, did you take advantage of the exclusion of $250,000 gains when you sold your house? If you could have taken advantage of it and didn't, you can probably still file an amended return and gets lots of money back.

 

2. Do you know your net worth? List all your assets and estimate their values. List all your debts and their values. (Include property, life insurance, vehicles, investments, loans, retirement accounts, etc.) Subtract these two numbers. In other words, if you died right now, this is how much your estate would be worth. (Obviously, don't list them on this board.)

 

I like to calculate this each year for my family and keep the running results in a spreadsheet to see if I am making "progress" from year to year. (A once-a-year update should be enough for someone who is interested in the long term.) This is the best time of year to do it, in my opinion, since all your year-end statements are coming in and you're probably getting ready to calculate your taxes.

 

3. Since you are thinking about getting things in place for retirement, you need to estimate your monthly expenses (don't forget things that are paid once a year and divide them by 12), and your monthly known income (retirement benefits, Social Security, anything else you may have). If your income doesn't match your expenses, you need to decrease expenses or increase income. There are lots of ways you can do both from moving to a place that is less expensive, working longer to increase your income, withdrawing a small amount from your investments each month. (If you think you might move after retirement, you might want to wait to a buy a condo in your retirement location, instead of where you live today.)

 

These are the things a financial planner will review with you but you can start the conversation with him/her with your rough draft of these numbers. I have subscribed to Money magazine for years and one of the best features I like is the monthly column in which they analyze a family's finances (a family can be a single person). After discussing their goals, their net worth (#2) and income and expenses (#3) are shown. Then a financial planner who is hired by the magazine shows them how they can make progress towards their goal. A different kind of situation is looked at each month. Look at back issues at your local library.

 

4. One thing I didn't understand about your original post is that if you are still working, why do you want to live off savings now? Do you mean you are putting your entire paycheck away and trying to live on a smaller fixed amount, as if you were retired?

 

You also need to be aware of which type of account you want to withdraw from because of the tax implications.

 

---Just some things to think about and to help give you a bigger perspective. Congratulations on wanting to take better control of your finances and being willing to learn.

 

 

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Hi Celia,

Thanks for your comments.

I will answer a couple questions that keep coming up in the responses to my original post. My responses are out of order.

 

I live in metro west Boston and do not want to retire here. I live here because it is between my job and the city. My retirement plan is to move to the Cape and I'm think it will be in about 4 to 6 years. Not sure if I'll buy or rent then.

 

I was able to keep all of the capital gain, $250,000, from selling my house. Bought one of the 'Dummie books' and was able to make that happen.

 

I figure out my net worth every year and do a budget. When I put most of my money in the bank after my house sale, I lost deductions and increased income so my tax bill was very high. I decided to put more of my paycheck in a 403b to reduce the income and use some of the interest off my bank accounts to live.

 

First I will call Vanguard and see what advice I get. Then I will think about going to a financial planner that will work with me. Talked to one a year ago and she wanted $1000, is that typical? Didn't like or trust her either.

 

Don't worry. I over think most of the time and don't just jump in. I liked the suggestion of Money Magazine, listening to podcasts, and have already read some of the articles suggested on this site.

 

I know I should of done this twenty years ago, nothing I can do but try now.

I have gotten more than I hoped from this site. People patient and willing to share their perspective.

jmg

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