Hi,
I am 50 years old and I paid my own way through college and out-of-state graduate school, then worked non-profit for a number of years. Needless to say, I was drowning in debt. I am basically debt free now and earning decent money (got out of non-profit a while back). From an old job where the employer matched, I have an annuity that rolled over from the job’s 401(k) that is worth about $15k. I am a single-member LLC and I started a traditional IRA last year that I contribute to from my LLC’s funds. It is worth $10k right now.
My question is, given the tiny amount of retirement that I have, what are my best options for trying to make up for lost time so that I can try and retire one day? What companies would be best to work with? Schwab? etc? In addition to the IRAs, I have about $60k between my LLC checking and personal checking/savings.
My advice to anyone starting to save for retirement, at any age, is first to make as much money with as little risk to your own money as possible and second, to live on a shrinking percentage of what you make.
My advice is to look for opportunities where big money is changing hands, where someone is selling and someone is buying. Then find a way for one side to want you to be at the table looking out for their interests. The more value you bring to the table the bigger the percentage you will earn.
I did it as a real estate broker, but there are many other occupations that allow for big money to be made as an advocate, adviser or fiduciary for a principle in big money deals.
Great advice! I just have no clue how to determine how to do that. I already live well beneath my means . . . I love my career already and don’t see making a huge change out of it to become involved in real estate or becoming a professional in the financial markets. I only make between $150k-200k/year as a single-member LLC so I can pay myself whatever I need to. I just have no idea what smart investments are, what my retirement options are outside of IRA’s, or where exactly to start in order to figure it out.
OK good now we have something to go on. Spend less than you make and save all you can.
Here then are a couple of kinds of vehicles to work on, with a view of paying less to the gestapo.
The first is to open yourself up a Solo 401-K. Only recently discovered it myself after departing from “employee” type status. With that 401-K, first you can dump possibly as much as 26k yourself each year. And your company can “match” a whole lot more than any regular company would ever match in a 401k. This all defers, not avoids, taxation. So you get a bucket of so-called “qualified” (un-taxed) money. When you hit a ripe age, you get hit with required minimum distributions, and everything you take out is ordinary so-called “income.”
That sounds bad, but you can work on that too; see my “un-tax your IRA” topic for more discussion. If you are not charitable, that won’t help because it amounts to giving away the un-taxed money.
Another vehicle to work on is the HSA. The requirements are several, including usage of a “high-deductible” health plan, NOT be enrolled in any medicare, and all money in it must be spent on appropriate medical expenses. You will need a good custodian, and I don’t have one to recommend.
Finally, on the subject of investment houses… Some like Fidelity and Vanguard. I have knocked heads with both over different issues and don’t like either. I do like Schwab, which is considered a “discount” broker, but they do have some vehicles including robo-advisor plans. With a reasonable stash, you will probably get an advisor, and I consider them to be generally decent.
Also from personal experience I will mention Edward Jones. I think each office is a franchise so they might vary a lot from office to office, and I know they can be very helpful. I think they are more a hands-on type house, but don’t know for sure as I only have a small-ish inherited account and they are so terrified of Wuhan Flu that they won’t see me. Maybe now that the Plan-Demic is over they will.
If you don’t want to start a new career, and you can’t package your current skills into a marketable product, then you may be limited to hunkering down with the income you have and cut back on expenses.
If you are netting $150k-200k annually then you should be able to save half of that amount. If it’s a gross figure then cutting expenses would be important.
Tez’s suggestion about a self-employed retirement account is a good one but I am also an advocate of diversifying investments. I did a SEP as a broker and it worked out well. You may want to take a look at SFR rentals, it’s a pretty good place to invest part of your retirement funds.
I’d be careful about leading with a tax-avoidance strategy. The #1 objective should be net production of invested funds.
If you want to have an income commensurate with your current earnings when you retire you’ll need at least zero debt and a $3M-$5M nest egg.
I might add that launching a new career might inject a bit of enthusiasm in your last 15-20 earning years. If you do a careful inventory of your skills and make some educated choices, it could be the best choice.
Most people are instinctively risk averse and don’t do it, but the rewards, both financial and intrinsic can be great for those who work up the courage to take on the challenge.
Whatever you do, do not claim Social Security early. Claim it at 70. Most people claim at 62, a huge mistake. 70 will give you the largest benefit. Plan to work until 70 or beyond. Clark makes that argument time and time again. He’s right. Good luck.
Doesn’t fit everyone Ocho! Late wife went for it at 62 and croaked at 72. Left me a lot more than if she had waited. Totally depends on your circumstances, and I certainly don’t know how to calculate…
Sorry for your loss. Yes, if you don’t think you’ll make it to 82 or 83, take SocSec earlier. My wife is also in poor health, she will claim early. But most healthy people who get to 62 will make it to 82. So healthy 62 year olds need to chill and claim at 70.
All the fee-based advisors I’ve come across want a pretty hefty start-up fee, like 0.1% of your net worth as a minimum. I found none worth the price.
All you really need to make good decisions concerning personal investing is a fifth-grade math education, a calculator and a little research. It wouldn’t hurt to spend some time listening to Clark Howard as well.
No one is as interested in getting good results as you are. That should provide the motivation to spend some time on it. Then, even if you decide to hire someone, you’ll be positioned to make a better choice.
I read an article by Clark (a staffer posted a link to some articles in this thread) that talks about getting a fee-based advisor. You disagree with that? I am great with math and stats, I just don’t have an awareness of financial markets, behaviors, trends, rules, etc. etc. so being great at math and stats may not be all that is needed if I don’t know exactly what formulas to use in which situations, or how the trends work, or general rules of thumb for how to do the investing itself.
Would that change your opinion of getting a fee based advisor? Or do you have other ideas? As to changing my career, I am a psychotherapist . . . I’m good with math and stats, yes, but over 25 years in mental health makes a drastic change sound more tedious than exciting, but I’m not closed to it. I am certainly willing to spend time learning this stuff, but since I am so far behind, I don’t want to wait to get started.
If you look at the present value of the income stream from the assorted ages, you’ll find that the break even point taking at age 62-63 is age 83-84, which is about one’s life expectancy then. By break even, I mean the point where the present value of taking S/S at later ages exceeds taking at age 62-63. Yes, taking at FRA up to 70 gives a higher monthly amount, but that does not reflect the true value.
As tsz stated, it all depends because one size does not fit all. It is more than what is the highest monthly amount, and everyone needs to review their financial requirements and situations because each one is different. I am 11+ years into stating S/S at 62 and have no regrets about starting then. If I surpass age 83-84, I will continue to have no regrets about it.
If one comes from long lived lines, allowing additiinal Social Security credits to build up makes sense. If one has a number of rekatives who passed away early, it probably doesnt. And the there is the consideration of leaving a larger survivor benefit for one’s spouse, and/or timing one’s own and survivor benefits to receive the most benefits. And certain scenarios become complicated, such as having a pension from a job that did not pay in to Social Security.
We learned the hard way about investment companies who charge a percentage of your portfolio. For years we paid nearly 2% not realizing how much that took a gouge out of our growth. I learned a lot on Bogleheads forum (Vanguard followers forum, there’s a lot of wiki links info too on that site) and the old Clark Howard forum. Keep asking advice!
I found with Vanguard you’re more on your own to learn, with Fidelity & Schwab there’s more in person help if you have a local office, and a place like Edward Jones goes by percentage and costs a lot. If at all possible steering clear of that is best, IMHO, not an expert but have been a DIY since 2013.
Fees are important to be aware of. Vanguard, Fidelity & Schwab are great with low fees. If you were to choose you might want to pick one of these.
Our strategy was ALWAYS each year maxing out our SEP (like a solo 401k) and maxing out either our ROTH IRA’s or Traditional IRAs depending on tax free or tax deferred strategy per year. Also maxed out an HSA (health savings account) while we had a High Deductible medical insurance plan, and then lastly using an online high interest savings account for our cash, like at ALLY bank.