"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

The only amendment I would offer is that it seems the most
frequent rate of 401(k) matching is 50%. So "... matched to
$3000. Emergency arises? $2250 after tax minus $300 penalty,
leaves $1950." Though again, a person has to be braced for
not being able to get the 401(k) loan/distribution
immediately.

I dislike the inaccessibility. "Emergency" to me means one
needs the money /now/. Yes, one can use a credit card to
bridge some of the immediacy problem, but I do not like
this. For someone under the gun, adding more for them to
track is not helpful, and the credit card interest could
steal away the remaining gain from the match.

- quote -

No thin ice. For someone who is careful (e.g. checks the
details of his/her 401(k), including matching amounts,
vesting requirements, loans, and time required to get a
distribution, plus is willing to juggle, say, credit card
debt as a bridge), doing as Xho, Will, and you propose can
make sense. A number of articles on the net suggest doing as
you say. Other articles prioritize the emergency fund
outside the 401(k). I think putting the emergency fund first
is more helpful to the typical person who really has not
much savings and is struggling to get a grip on his/her
financial situation and job. That is, s/he is in precarious
straits to start with, so confusing him/her with what I
think is some pretty heavy minutiae on 401(k) plans is not
helpful. Does s/he really have time to find out how quickly
s/he can get a hold of her 401(k) money and document this
somewhere so s/he can get right on it should that emergency
arise? We do get some nasty reports on 401(k) delays, after
all.

A truth halfway between your and my general guidance is
perhaps worth contemplating: Something like fund both the
401(k) to the match while also having a 12-month plan to
fill the emergency fund. This actually seems pretty common,
from reports on the net. Orman and Ramsey often seem to lean
this way. Burns, not so much.

Or, with all due respect, we are kind of splitting hairs. A
lot of people happen to keep a buffer of cash of several
thousand dollars, ISTM, just lying around.

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Elle wrote:
- quote -

You are right about that. There's always some missing details about a
given situation that means unknown variables. Not to mention one's
'feelings' about borrowing or risk level.
Strictly choosing between the emergency account and the (matched)
401(k), I view it this way: Assuming 25% bracket (that's fair, no?), one
can put $1500 in the emergency fund vs putting in the gross $2000 and
having it matched up to $4000. Fired at the end of the year? $3000 after
tax minus $400 penalty, leaves $2600. Yes, I propose the 401(k) loan
substitute as the emergency fund, as you're able to borrow out half at a
decent rate. I understand I am on thin ice with you when I go this way.
I understand that. I just can't advise ignoring that match.

Joe

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"Will Trice" <wtrice[at]notmonitored.com> wrote
- quote -

I suppose if the match is high enough; vesting is not a
problem; one recognizes that one may have to put more into
the 401(k) to realize (upon emergency withdrawal) the same
s/he would realize if the money were not in the 401(k) (blah
blah pre-tax and after tax effects); has the discipline to
invest (the emergency amount) in a money market fund or
short term bond fund within the 401(k) (is that usual?); and
one can stand the administrative delays that seem often to
go with getting money out of one's 401(k) pre-retirement,
then I can tolerate Joe's, Xho's, and your argument. That's
the extent of it for me. Too often a car breaks down;
someone's AR mortgage adjusts up; someone loses a job; a
parent has to go into a nursing home and $7000 is needed now
as a deposit until say, Medicaid kicks in; a lawyer needs to
be paid while you divorce your spouse etc. for me to put
serious faith in this argument. It is a lovely academic
exercise, though. :-)

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Elle wrote:
- quote -

While I agree with you about the OP possibly not saving enough, I think
you missed Xho's point (and maybe Joe's, too?) that when prioritizing,
maybe the 401(k) should come before the emergency fund, at least up to
the match. Of course, that doesn't address other emergencies that don't
result in a separation of service...

-Will

william dot trice at ngc dot com

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<xhoster[at]gmail.com> wrote
- quote -

over an emergency fund:
- quote -

In my opinion, the importance of keeping money in tax
advantaged retirement savings cannot be overstated. That
money is for retirement--a whole other category of savings--
period. When withdrawing as you propose, you lose the tax
advantage on the withdrawn amount forever; you may have to
withdraw when the market is down, causing loss of historical
returns; you lose 10% for the penalty (with some
exceptions); and you lose the taxes you must pay on the
distribution.

When one starts calling one's 401(k) (or IRA) one's
emergency fund, then one is simply not saving enough, in my
opinion, and is rationalizing bad financial behavior. If one
insists on thinking of a part of one's 401(k) as one's
emergency fund, then better invest that part in something
mighty conservative. Meaning you lose returns.

I advise having a separate emergency fund.

Two cents.

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"Elle" <honda.lioness[at]spamnocox.net> wrote:
- quote -

How long does it take to process a separation-from-service withdrawal
from a 401K? If he loses his job, he could cash out the part of the 401K
that was funded at the expense of his emergency fund (including the amount
arising from tax deferal). The matching funds would more than cover the
10% penalty, leaving him with more of an remaining emergency fund than he
would have had he directly funded the emergency fund rather than the 401K.
Am I missing something? While not completely eliminating an emergency
fund, it seems like you could make do with a smaller one.

Xho

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"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

I agree.

- quote -

Over having an emergency fund? If the guy loses his job, how
is he going to keep paying the mortgage?

I agree that some consideration should be given to move (c)
ahead of (b), though I would make it dependent on the type
of debt being carried and other factors.

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BreadWithSpam[at]fractious.net wrote:
- quote -

I'd ponder the order of a,b,c as well. I can make the case that c should
be the priority as many companies offer a dollar for dollar match on
first X% (5 in my case) and grabbing those free dollars should be the
priority.
Joe
www.blog.joetaxpayer.com

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"Elle" <honda.lioness[at]spamnocox.net> writes:

- quote -

These things are always subject to discussion/debate, but
if one has financial dependents - people whose day-to-day
living and lifestyle depends on your income - then
(e) life insurance - and also disability insurance - should
probably be given higher consideration. If one hasn't
saved enough for retirement, one can consider working
longer (if not disabled). There is no such remedy for
death or disability.


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"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
Elle wrote
- quote -

I agree the OP should go to the Social Security site and
calculate how much he should receive, or review the annual
statement he should be getting from SS a few months before
his birthday. I'd just want to double check he's worked and
paid into the SS system a minimum of ten years, or plans to
do so. (Given the small savings, I do not want to assume.
House spouse for awhile? Inherited and, uh, squandered?)
Either way, you are certainly right to point this out.
Though I would continue to argue we are trying to get him
into the ballpark and with a decent safety net, given the
uncertainty of health care in old age, speculation that the
stock market may not see an average gain of 10% a year for
the next 15 years (supposedly a fair assumption for the OP's
timeframe), and so forth. The much batted about 4% drawdown
is based on historical stock market gains of about 10%,
after all.

snip
- quote -

This also occurred to me after I posted, and I agree it's
likely his best bet is his SEP-IRA. Roth IRA and taxable
accounts should be filled last, if at all, with retirement
assets. Plus at some point he may want to consider asset
location in addition to asset allocation. For example,
consider putting bond funds and REITs only in the SEP-IRA,
not in any taxable accounts. The point is the OP is someone
who should be particularly concerned about optimizing his
tax advantages in the coming year, given his high income and
so high tax bracket. All subject to the usual caveat that
future tax rates are unknown.

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On Jun 5, 2:21*am, ehol...[at]charter.net wrote:
- quote -


Pay off your credit card and auto debt is the first thing you should
do. Depending on your mortgage, there is no real hurry to pay that
off.

What are your IRA's invested in?

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Elle wrote:

- quote -

At $90K income level, one can expect approx. $27K from Social Security.
So if $40K is the OP's replacement target, he has $13K to make up. From
your 25X number (which I agree and endorse) that's $325K. This is not
only doable for the OP, but at 49, he should be able to exceed this, and
track his progress ahead of inflation. I like rick++'s rule showing X
times income at given ages. It has the inflation adjustment built in. So
for a retirement right now, OP needs less than four times his income at
retirement.
Note - that $325 figure is low enough that SS tax trap doesn't apply,
and $13,000 income is mostly fit into STD deduction and exemption, the
rest taxed at just 10%. Thus, I suggest he save all he can in pre-tax
accounts.

SS numbers posted in an article by me at
http://www.blog.joetaxpayer.com/archives/150
and my wildly popular spreadsheet backing up your and rick++'s numbers
at http://www.joetaxpayer.com/retirement.html

Joe

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1.
"Big picture checklist," with higher priority higher on
list:
(a) Emergency fund
(b) Pay off high interest rate debts
(c) Contribute to tax advantaged retirement plans at least
up to matching
(d) Contribute more to retirement (both tax advantaged and
not tax advantaged)
(e) Consider life insurance to help your child should you
die
(f) Consider a tax advantaged college savings plan for your
child

2.
Budget:
(a) Put expenses on a spreadsheet. Monthly bills, child
support, recreation, anticipated major repairs, mortgage,
and so forth. Some of these will be pared down.
(b) Compute how much you need to retire. This will determine
your saving and spending habits in the future.

Where you are with all this:
(1a) Is $10k at least six months of expenses? If so, good
enough.
(1b) Pay off the CC debt now from your emergency fund, then
start replenishing your emergency fund. Give the interest
rate and monthly payments on your auto loan and mortgage,
and we will talk more about them.

Move to 2. budget, since it determines how much can go
towards the rest of the items in 1.

(2a) Assuming $90k is your net income from work, and
assuming about $20k of child support each year, you have
about $70k of income per year, or about $5.8k of income each
month.
(2b) Let's start getting some ideas about how much you need
to save for retirement. Assume by retirement you have the
house paid off, no debts, and can live easily on $40k per
year of income (at today's prices, in today's dollars) in
retirement. We will account for inflation momentarily. A
crude rule of thumb for retirement years is to figure a
drawdown of 4% from your retirement savings each year. So
you need around $40,000/0.04 = one million dollars in
today's dollars before you can safely retire (very crude
guesstimate based on some conventional wisdom). You are 49.
Figure you will work at least 15 more years. You need to
save around $65k a year (scaled upwards each year for
inflation). Now that will be pretty impossible for the next
few years (unless you do as John Weeks advises, and you
probably should, for peace of mind), but you should be able
to get closer to that as you age and continue to work. The
next free weekend you have, try experimenting with some of
the tools linked at
http://ellessite.googlepages.com/ret...ithdrawalrates
to get a better idea of how much you need to retire.

Next steps: Asset allocation among company retirement plan
and IRAs. Do not worry about market ups and downs. Worry
about asset allocation. Discussion of health insurance (now
and in retirement). Discussion of job security.

Lurk here and consider googling for other financial planning
fora and following them. Ask questions on individual points
above, starting new threads with a focus on each point. I
prescribe listening to and reading Clark Howard, Suze Orman,
and Scott Burns as well. They do not all say exactly the
same thing but they are very close in their advice, and the
(generally small) variations will help focus you further.
Pretty soon it will become repetitive and you can finely
tune your plan.

Lastly, thanks to the net, you are not alone in your effort.
It should not cost you a dime to get focus, as long as you
remember the only stupid question is an unasked one. Most
likely your choices will be some kind of average of what
people say here, based on what I know of the high
participation rate, and an average of a lot of thoughtful
input (when it comes to numbers like these) typically yields
a good choice.

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On Jun 5, 6:27 am, "John A. Weeks III" <j...[at]johnweeks.com> wrote:

- quote -

A simplistic scale is:

age: annual incomes saved:
30 one
40 two
50 four
60 eight
65 twelve

This makes a ton of assumptions about things, but is
a good first cut (from NY Times). Suze Orman uses
something very close to this when she denies people
on her "Can I Afford it?" segment.
That suggests about $330K for the OP and what John said too.

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In article
<bec04511-4622-47cb-b4e2-5d2fc8854bbb[at]8g2000hse.googlegroups.com> ,
eholand[at]charter.net wrote:

- quote -

You are going to get just a little from me. You see, your
previous mode of operation left you with a disorganized mess.
You are not in that bad of shape, just way behind and totally
disorganized. The best that I can suggest right now is that
you pick up a few books on personal financial planning and
retirement, and do some reading. In the long run, nobody will
care more about your situation that you will.

- quote -

Sounds like you are on the right track, but way behind. Your
totals should be in the quarter to half million range by now,
not in the low 5 digits.

- quote -

You make a ton of money. Where does it all go? Perhaps you are
going to have to look at doing a budget for a few months to figure
out what happens to all this cash. You see, you are a the very,
very top of the scale for people who work for a living, yet you
are little more than entry level for retirement savings. That
is a huge disconnect. The money has to be going somewhere.

- quote -

Take the $10K and pay off these bills and loans today. No sense
paying interest when you are getting close to zero on savings.

- quote -

Ding, ding, ding. You get it. That is your biological alarm
clock going off. The problem with most people is that this alarm
goes off too late in life so they don't have any time for the
miracle of compound interest to help out.

- quote -

The market goes up and down. Retirement money is long term
money, so don't worry about short term yo-yos.

- quote -

Unless you have a sub-prime loan, don't get focused on paying off
your home. You get the small tax advantage, so the money does not
cost that much. It is better to get your money into long term savings
and let time work to your advantage.

- quote -

Don't worry about equity. Partnerships rarely work. If you are the
key person, make sure you keep getting paid that way, or find someone
who will pay you right. Owning and running a business is a real
nightmare, unless that is really where your passion is.

-john-

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Please don't rip me...It simply isn't necessary.
I simply don't know what I am doing with my retirement investments. I
have an IRA SEP( my company contributes up to 3% of my
salary...balance about 16K...I put in about 15K a year) and I have 2
IRAs that I put 4k in for the past 2 years. So total is about 26K.
My salary is 90K(w2 income plus a small amount of self employed
income) plus a bonus of approx. 35 k paid in July.
I pay 14.11% in child support(which is figured from gross wages but
obviously paid from net). I have 10 K in cash emergency fund.
I have about 6 K in auto and CC debit( CC debit under $1,500).
I can "save" approx. 25% of my wages. I have a ton of catch up
retirement to do. I turned 49 last Thursday.
I have lost 12% of my retirement since Nov. in the market.
I owe 78K on my modest house. Would like to pay off in 4 years then
put balance in retirement fund.
The company is small that I work for but has been very successful( I
say modestly, due to a large effort from me). Owners are willing(but
very reluctant) to give me equity.
Sorry to be rambling but I simply don't know who to ask what I am
doing right or wrong.
Any thoughts?
Thanks in advance.

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