25 and have been hearing that it's very beneficial to start saving for retirement NOW. Being a teacher, I do have a decent retirement plan already in place with the state, but I thought it couldn't hurt to start an IRA to supplement that since I'm young and have a little disposable income.

Where should I start? Since I don't know much about investing should I go to a financial advisor, or is it pretty easy to do something like Vanguard online?

2/21/2015 7:08:13 PM

Something like Vanguard online will be fine. Investing can be rocket surgery if you make it that way, but there is no need for you to. You can make it very, very easy and get what you want out of it.

And yes, starting young is crucial. Do it yesterday.

2/21/2015 7:33:09 PM

Being a teacher, I do have a decent retirement plan already in place with the state.

Yeah consider that inaccessible at best. Good job, the only guarantee for your future is to start saving yourself now.

2/21/2015 7:34:18 PM

So what would you guys recommend I do if I just want to set it and let it ride. Is there a good option to just sign up and let them manage it for me?

2/21/2015 7:38:12 PM

To be honest, the key is to not fuck around too much. If you're investing long term just put it to SPX or a similiar index tracking fund and don't fuck with it. Avoid the temptation of investing in single names or moving around to other assets. That's when you get really fucked because you're slow money and by definition behind the curve which means you'll end up a loser.

2/21/2015 7:47:38 PM

Most places offer automatic investment plans. If you really want to be uninvolved or don't want to do your own research (something I've never understood, spend an hour a week looking at the market and reading the news and you'll do better than a lot of mutual funds) you can set up automatic investment into a targeted retirement date type fund, like theduke866 mentioned, Vanguard offers a lot of these. Just pick a site and open the account, it takes 30 minutes.

It's certainly wise to, at minimum, invest up to company match in a 401(k) plan and then try to max out contribution to a Roth IRA if you can. I'm not sure exactly how a 403(b) plan works (I'm assuming you have this as well in addition to a state pension) but if it's anything like a 401(k) you should contribute to that as well if it's matched. If it's not I wouldn't contribute to it unless you're already maxing out a Roth IRA.

2/21/2015 7:48:42 PM

^ that's better advice. Maximise your 403b match. Invest in a target fund. Don't fuck with it

2/21/2015 7:50:18 PM

I don't have matching in anything. The way mine works with the state is that I get a guaranteed percentage(like 60%) of my highest years salary, guaranteed until I die. I feel like that's a pretty good gig since it doesn't run out.

So since I'm not matched I should just do an IRA? And it sounds like I should do the vanguard targeted retirement date investment?

2/21/2015 7:53:59 PM

Quote :

" The way mine works with the state is that I get a guaranteed percentage(like 60%) of my highest years salary"

Maybe this will happen but what if it does not? Most financial planners tell people our age to consider retirement as if Social Security won't pay out when it comes our time. It's pretty good advice, no part of me believes the numbers that Social Security sends me year after year. Unfortunately most public pensions are in even larger danger and under much less scrutiny. The unfunded portion of public portions numbers in the trillions. As I said before, counting on your pension being around when you retire is folly. The only thing you can count upon is money that you set aside for yourself. You should aim to max your 403b contribution putting funds into a target retirement fund. Set up automatic contributions so you're used to the outflow like a utility bill

2/21/2015 8:09:54 PM

Yea, you should maximize your IRA before contributing to a 403b. There is no match on the 403b and the investments suck. Open an IRA with Vanguard and contribute as much as you can.

I don't agree about the target date funds. They include bond funds which aren't good investments with low interest rates. I would buy index funds, possibly as simple as just the vanguard total stock market fund or the Vanguard 500 index. You might put 10-15% in an international index fund.

Quote :

"As I said before, counting on your pension being around when you retire is folly."

That's easy to say, but the reality is public sector salaries are lower, in part, because of the pension. It's a compromise. Sure, save what you can, but it isn't going to be practical for a teacher to save enough for retirement outside of the pension.

[Edited on February 21, 2015 at 8:22 PM. Reason : ?]

2/21/2015 8:10:52 PM

Some target funds have high expense ratios. I'd rather stick to very low expense ratio index funds if I'm looking for something hands off for the first 20-25 years of my career. Then maybe start putting money into some target date funds which will help you be less exposed to market cycles.

2/21/2015 8:20:17 PM

^^^well they're taking 250 a month out of my paycheck so I better see something. But I see what you mean.

[Edited on February 21, 2015 at 8:21 PM. Reason : . ]

2/21/2015 8:21:01 PM

An example of a low expense fund would be..

2/21/2015 8:22:52 PM

That's the same I feel about the 6.2% of my check that just disappears into SS, but I'm not counting on it, in fact I'm assuming it's not there for purposes of retirement.

Considering how massive the unfunded pension liabilities are in most states you should probably assume the worst as well, even though NC has one of the more solid pensions in the country. If you were in say... Illinois you might as well consider that money gone.

2/21/2015 8:26:15 PM

Quote :

"^^^well they're taking 250 a month out of my paycheck so I better see something. But I see what you mean."

You'll certainly get out what you put in and most likely will get what you're promised. Once you're vested, they can't easily change the terms.

2/21/2015 8:26:36 PM

Vanguard 500 Index Fund Investor Shares (VFINX)

2/21/2015 8:27:17 PM

Okay so the decision is a target date fund or should I try to diversity on my own? I know everybody has their own opinion.

2/21/2015 8:29:54 PM

^^^Tell that to public employees in Detroit and in California. Courts have already said that pensions are not 100% guaranteed.

It's probably safe but you'd be better served to act like you won't see what you're promised.

[Edited on February 21, 2015 at 8:31 PM. Reason : sdfsdf]

2/21/2015 8:31:08 PM

I'm not sure about going 100% stocks. Would it be good to do like 70/30 stocks bonds?

2/21/2015 8:33:28 PM

ultimately, I say skip the target date funds, however, most "real" funds have a $3000 minimum, while the target date funds are $1000. So if you don't have 3k to invest yet, start with the target funds and switch when you have saved enough.

This isn't really about diversification. The target date funds are diversified, but many other single funds are also sufficiently diversified.

2/21/2015 8:35:12 PM

For it to completely disappear, some serious collapse of the state type shit would have to happen. But it's best to assume that you won't get anywhere near what you're promised. After the Detroit/California precedent I think that the trimming back of pensions is going to be come standard.

Social Security? Now *that* I'm assuming won't exist at all.

2/21/2015 8:35:50 PM

At your age and given current monetary policy, I don't see any option but 100% stocks. Keep a few month's cash in your checking account and invest the rest in stocks.

2/21/2015 8:36:25 PM

Okay this is gonna be a completely retarded question... But open an IRA and within it invest in stocks?

2/21/2015 8:38:54 PM

yes, but indirectly by buying index mutual funds. Building a stock portfolio sounds like fun, but you're not going to have enough money for this b/c you have to pay commissions when you buy stocks.

The thing to know about bond funds is when interest rates rise, bond funds go down. Interest rates can only increase, so it is really all downside on bond funds.

[Edited on February 21, 2015 at 8:46 PM. Reason : ?]

2/21/2015 8:43:06 PM

Yup.

So, go to a site like Scott trade, E-trade, Sharebuilder, Vanguard, etc. Open a Roth IRA account. You then fund it from a bank account (checking or savings) and then you purchase stocks, mutual funds, ETFs, or other investment vehicles. You pay some usually standard fee for each trade/purchase that you make.

So, for example you choose to open an account with E-trade and you contribute $1000 to it, all it does is sit there until you make an investment decision like buying a few shares of Apple stock or deciding to contribute to an S&P 500 index fund, they will then charge you some fee, usually around 5-10 dollars to facilitate the trade. Blam, now you own stock or have money in a fund which owns a lot of different stocks.

It sounds like you would be well served to spend all day tomorrow doing some googling and checking out a lot of different investment sites or even going to your bank and talking to them if they offer investment and retirement services.

2/21/2015 8:46:10 PM

Or you could just open a Vanguard account.

2/21/2015 8:47:31 PM

So when I open up an IRA with vanguard I will have the option to put all of it in that investment index fund, which is already well diversified, thus minimizing risk associated with stocks.

2/21/2015 8:47:39 PM

^^^I figured asking you know it alls would be easier than Googling

[Edited on February 21, 2015 at 8:51 PM. Reason : . ]

2/21/2015 8:51:14 PM

Yea, when you open your account, you'll do a transfer from your checking to the IRA. Once that money comes through, what you'll do is buy the index fund you want and then configure automatic investments to buy more each month.

[Edited on February 21, 2015 at 8:51 PM. Reason : ?]

2/21/2015 8:51:20 PM

I mean, you can ask TWW, but it's your money and your decision ultimately. I'm all for soliciting advice but please do some research and talk to some professionals if you can do so for free as well. I doubt if Patman is a financial planner, and I know I'm not, so take our advice about what you should do for what it's worth. We don't know the specifics of your pension plan, what your monthly budget is, how you tolerate risk, etc.

2/21/2015 9:00:37 PM

You could check out Clark Howard or Dave Ramsey for some real basic investing advice too. Some people shit all over these guys, but their advice is good for people who don't know anything about investing.

2/21/2015 9:49:25 PM

It is no such thing. It is poor advice that you should not follow.

It is much less destructive than what many people do, I'll give you that...but if you're going to take a few minutes to learn some basics, learn some good and accurate basics.

2/21/2015 9:56:09 PM

yeah, I would read up on these:
http://www.reddit.com/r/personalfinance/wiki/iras (reddit has a lot more FAQs on its the personal finance sub that're pretty good)
http://www.clarkhoward.com/news/clark-howard/personal-finance-credit/clarks-investment-guide/nFZK/

make sure you're clear on when you can withdraw what, what penalties there might be, etc. before you put your money in. depending on how much you have in the bank and plan to invest, you may want to do this relatively soon; you can contribute up to last year's $5,500 limit through April 15 in addition to the $5,500 limit for 2015 contributions through next April 15.

i haven't looked at our 403b options in a while, but i knew they used to be pretty crappy for state employees. i've ended up putting some extra money in taxable accounts rather than a 403b because i think the returns could be better and i want to be able to have access to it sooner than age 59.5, if i need it. like you, i'm also hoping that the state pension holds out long enough that i get that benefit too, in addition to the what i've socked away in my roth.

^ i don't know if i would necessarily take Ramsey or Howard's advice on what to invest in, but they both can explain the basics of IRAs, mutual funds, etc. pretty clearly and accurately

[Edited on February 21, 2015 at 10:06 PM. Reason : ]

2/21/2015 10:05:22 PM

Quote :

"I'm not sure about going 100% stocks. Would it be good to do like 70/30 stocks bonds?"

No need for that at 25. I'm 35, and I'm probably 95% stocks. That might be a bit aggressive, but you can definitely do that or 100/0 when you're 25, absolutely no problem.


You may be able to do an IRA directly with Vanguard (or Fidelity, T. Rowe Price, etc). Sometimes if you open an account and set it up to be automatically funded each month, they'll waive the minimum buy. Regardless, you can do that if you don't want to get too into things...open an IRA, set it to purchase however many hundreds of dollars of Target Retirement 2055 you want to buy every month, and forget about it. Have your paycheck auto drafted to fund it.

Make sure you are maxing out any company match on a 401k or whatever, first. Make sure you have paid off any high-interest debt like credit cards first. I'd probably make sure I had at least a few months of expenses (not salary. expenses.) put away in cash first.

You can do this, dude. You're doing the right things at the right time. I started maxing out a Roth IRA every year when I was 24, and buying stocks and funds pretty seriously when I was 25. I have made more money over the last decade than teacher salary, for sure, but nothing crazy--I was in the Marine Corps. I have been much more into trading individual stocks, trading options, etc than you may ever have an interest in, but that's peripheral. Just diligently and aggressively pouring money into stocks, starting at a young age like that, will pay off in a huge way down the road.

2/21/2015 10:29:45 PM

Vanguard actually has a good page illustrating the historical risk and returns of various allocations of stocks and bonds:
http://www.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

forgot they don't have 90/10 or 10/90 data for some reason, but I'm sure that could be found. personally, both my wife and my IRAs are in roughly 95% stocks and I'm a few years older than you

[Edited on February 21, 2015 at 10:44 PM. Reason : ]

2/21/2015 10:41:12 PM

You'll read a lot about shifting your investments to bonds gradually as you near retirement. This was probably good advice when it was written, but current monetary policy makes it foolish. The game has been rigged to force everyone into stocks. You can create income by buying bonds, but you can only create growth by buying stocks.

Keep this in mind: if you put 100% of your IRA in stocks, you aren't investing 100% of your retirement in stocks. With pension and social security you are investing 18.4% of your income in an annuity. So if the worst happens with the stock market, you'll have something to fall back on. You haven't said what you plan to contribute to your IRA, but on a young teacher's salary, without growth, in your IRA, it will be worth very little when you retire anyway.

So my point is, while there are never any guarantees in life, invest what you can in your IRA and use the fact that you have a pension to take some risk with your IRA investments.

[Edited on February 22, 2015 at 8:38 AM. Reason : ?]

2/22/2015 8:12:32 AM

I do make quite a bit more than the majority of young teachers, but with a car payment and mortgage I will probably only be able to contribute around 200/month to the IRA

2/22/2015 8:53:43 AM

I think that's a great start! What I've done is as I get raises, I increase my contributions.

2/22/2015 10:31:59 AM

I don't understand why everyone assumes SS won't be there. You'll get what you are owed, it just might be with inflated dollars. Citing state pensions, where they can't print money, is a fools errand.

2/22/2015 11:56:31 AM

Because it's on track to run out.

2/22/2015 12:56:13 PM

Teachers don't get a 401k match guys. At all.

They also don't make enough to max out anything.

Question on the 403(b), what are the advantages of the IRA over the 403b. Because of the young age teachers can potentially retire, isn't the 403b more beneficial? Even with limited investment options.

[Edited on February 22, 2015 at 1:01 PM. Reason : .]

2/22/2015 1:00:54 PM

The biggest advantage of an IRA is it is not tied to your employer, which means you get to pick the best deal and avail yourself of the entire market, not just a few funds hand selected for you. They recently changed the investment options in the UNC 403b program, replacing low cost vanguard funds with higher cost funds. There isn't much you can do about it, but with an IRA, you can switch brokerages.

Also, if you leave state employment, you don't have to worry with rollovers.

AFAIK, qualified withdrawals from both 403b and IRAs is at at 59 1/2. It is true that you can begin to draw from employer sponsored plans at 55 if you separate from employment. So that is an advantage for the 403b, but if you have a Roth IRA, you can withdraw contributions at any time. So the limitations only apply to earnings. If you don't have enough principal to make it 4 1/2 years, you probably don't have much business retiring.

Roth IRAs don't have required minimum disbursement. IRAs have income limitations, so not everyone is eligible.

It's worth noting that you can do an IRA, 403b, and 457. I would do them in that order and I wouldn't both with the next one until you are able max out each one. Together they let you save 5.5k + 18k + 18k = 41.5k per year.

I think the following is the right order of priority for state employee retirement investing:

1.) Build emergency savings.
2.) Pay off unsecured debt or bad debt (underwater car or mortgage loans, private or high interest student loans)
3.) IRA
4.) 403b
5.) 457
6.) Mortgage
7.) I'll let you know if I ever get to this point

2/22/2015 1:29:04 PM

Quote :

"Because it's on track to run out."

That's kind of misleading. There is the social security trust fund that is expected to run dry in 2033, but most social security benefits are funded by payroll taxes. The worst case scenario is payroll taxes going up (extending payroll taxes to all earned income) and/or benefits being reduced (likely by means tests). Either way, you can count of social security for its intended purpose of keeping you out of abject poverty in your old age.

2/22/2015 1:37:21 PM

Fiance just told me her work has a matching 401k. That would have been nice to know. We should max that out before I do anything about opening the IRA?

2/22/2015 3:36:24 PM

That's an interesting question. SHE should absolutely be contributing to the 401k to get the match. I don't know that I would contribute any more. You'll typically see something like you contribute 6% of salary and the employer contributes 3%.

I would caution you that retirement accounts are individual accounts. You both should individually be saving for retirement. So I would do both. If you were to ever split, it is unlikely you would recoup any sacrifices you made. That said, it is important that you as a couple decide what's fair for each of you to claim for retirement savings.

I think a reasonable goal is for each of you to "pay yourself" at least 18% of your gross salary. You could reasonably include the 6% you pay to the pension in that.

2/22/2015 3:58:37 PM

I was trying to think of a polite way to say it, but yeah... plan for your retirement like she doesn't exist.

2/22/2015 4:05:04 PM

I was just thinking that since I have the pension to fall back on in case anything happens with us, it would be better use of my additional money to contribute to something that will be matched, rather than an IRA which wouldn't be. I understand your thinking, but with the pension, I am saving individually.

2/22/2015 4:18:34 PM

i guess it depends on your budgets and her employer match, but does she not have extra $ she can contribute to her 401K? ideally, she'd be able to contribute up to her employer match and you'd put what you could into your roth. granted, $200/month isn't gonna make a huge difference right now (especially assuming you're basing it off your 10 month salary) but it's better than nothing.

2/22/2015 4:40:26 PM

^I'm on a 12 month but yeah..still not a huge contribution. We will have to feel out our budget after we get married and re-evaluate.

2/22/2015 4:45:57 PM

I've been with Vanguard since I was 16...thanks to my aunt who retired early from corporate law and died young just as she started her second career as an adult literacy teacher.

Thanks, Aunt Nancy.

And fuck you, fate.

Also, you're welcome for this helpful and informative post.

2/22/2015 6:12:44 PM