Welcome to Bimmerfest -- The #1 Online Community for BMW related information! Please enjoy the discussion forums below and share your experiences with the 200,000 current, new and past BMW owners. The forums are broken out by car model and into other special interest sections such as BMW European Delivery and a special forum to voice your questions to the many BMW dealers on the site to assist our members!

Please follow the links below to help get you started!

Go Back   Bimmerfest - BMW Forums > Everything Else > Off-Topic

Off-Topic
Everything not about BMWs. Posts must be "primetime safe" and in good taste. No personal attacks allowed. Political posting is restricted to the Political Science forum!

Reply
 
Thread Tools Display Modes
  #1  
Old 12-09-2014, 08:20 PM
swchang's Avatar
swchang swchang is online now
Family Man User
Location: Baltimore/DC area
 
Join Date: Oct 2003
Posts: 5,304
Mein Auto: BMW, M-B, Honda
personal finance

I've been doing some reading about personal finance lately. Seems the basic concept is to KISS for >99% of us. With that in mind, here are some tips I've accumulated thus far. Feel free to add more as you see fit.

Spend less than you make. This should be obvious.

Pay off your credit cards in full every month. This should also be obvious.

No debt is good. Some debt is worse than other debt, though.

Buy and live in it. As with everything, don't buy more than you need.

Get the 30-year fixed.

Take your monthly mortgage payment. Divide it in half. Pay it every two weeks.

First house and first spouse. Keep them both.

Working is something you do so you can retire.

If you want to retire earlier, spending less is much more important than earning more. By far.

Bring lunch.

Buy used. Drive it till it dies.

Diesel for highway, hybrid for city.

Calculate how much you spend a year. When your savings equal 33x, you are ready to retire. This is because you can draw down on 3% of your nest egg in perpetuity.

We are trying to teach our elder son the difference between "need" and "want." Many of us would benefit from learning the distinction.

Automate your savings. "Pay yourself first."

If you're Christian, don't forget >= 10% (of gross, not take-home) to the Church.

Save a bare minimum of 10% of your gross salary. See table at http://www.mrmoneymustache.com/2012/...ly-retirement/.

Before you contribute to retirement savings, bulk up your emergency fund: 6-12 months of necessary expenses.

Contribute to a 401k if your company has one, and especially if there is a match. At least contribute to an IRA if you qualify.

Max percent of bonds in your portfolio should be "120 - age."

Asset allocation: Again, KISS. Bonds as above and the rest in equities. Of equities, 50% US and 50% international. Of US, 25% small, 25% large cap. Of international, 25% developed, 25% emerging. Buy indices (SPY, IWM, EEM, EFA) or Vanguard funds (VTSMX, VGTSX, VBMFX).

Rebalance once a year. Maybe twice a year, but no more.

For tax-deferred and tax-"free" accounts, rebalance by selling high and buying low. For taxable accounts, consider rebalancing by adding to underperforming assets.

The 1/3 rule: Keep 1/3 of your savings in a taxable account, 1/3 in a tax-"free" account, and 1/3 in a tax-deferred account.

Even if you can't contribute to a traditional or Roth IRA, you can and should to a traditional or Roth 401k.

If you have kids, don't put money in their names (UTMA). Put it in a 529. Start with one in your state for state income tax purposes. Also consider the NY 529. I think it's better than Utah's. If you think they'll go to a private college, you'll need about $1000/mo starting at birth.

Encourage your kids to go to college and to finish college.

529s can pay for grad school, don't forget.

Have your parents reduce their taxable estate by helping pay for your kids' education.

Everyone knows about life, but don't forget disability. Individual > group. And if you're a physician, get "Own Occ."

It's better to have control than to have ownership.

If you're married and your state lets you, T/E can be a good option.

Trusts can bypass probate. They are just one method. Also look at POD and TOD.
http://www.nolo.com/legal-encycloped...hapter0-4.html
http://www.nolo.com/legal-encycloped...ate-31015.html

LLCs for rental property.

Retirement accounts should go to the spouse (primary) and then to kids (contingent) unless you have a properly established retirement trust. Emphasis on properly.

When possible, leave money to kids directly instead of your spouse, lest your kids be hit with estate taxes after #2 goes.
__________________


2004 BMW 330i • 6MT • Orient Blue Metallic • Sand Leather • Black Cube Trim • ZHP • ZCW
Reply With Quote
Advertisement
  #2  
Old 12-09-2014, 08:58 PM
Sportsdad's Avatar
Sportsdad Sportsdad is offline
Officially Welcomed to the 'Fest
Location: Between chaos and madness
 
Join Date: Feb 2012
Posts: 1,753
Mein Auto: 4Runner-BMW
Fock all that, I'm spending my million when I retire in 4 years. Leaving nothing but my grand dad's and dad's guns for the next generation to earn their money with.
Reply With Quote
  #3  
Old 12-09-2014, 09:01 PM
swchang's Avatar
swchang swchang is online now
Family Man User
Location: Baltimore/DC area
 
Join Date: Oct 2003
Posts: 5,304
Mein Auto: BMW, M-B, Honda
Quote:
Originally Posted by Sportsdad View Post
Fock all that, I'm spending my million when I retire in 4 years. Leaving nothing but my grand dad's and dad's guns for the next generation to earn their money with.
I guess they can always visit some banks with those guns to "earn" some money.

BTW, someone pointed out a mistake I made. The bonds line was erroneous and should read thusly: Percent of stocks in your portfolio should be roughly "120 - age." Consider bonds to make up the rest.
__________________


2004 BMW 330i • 6MT • Orient Blue Metallic • Sand Leather • Black Cube Trim • ZHP • ZCW
Reply With Quote
  #4  
Old 12-10-2014, 09:12 AM
mark_m5's Avatar
mark_m5 mark_m5 is offline
Overly Intellectual
Location: Where the money is.
 
Join Date: Sep 2006
Posts: 4,962
Mein Auto: 2002 M5, 1999 M Roadster
Wise words.

We need to offload our monster house and get a nice little one with no yard. Just have to kick the adult kids out.

Speaking of which, you missed an important point from the books I've read on getting rich: don't be a welfare agency for your kids. Get them to support themselves as quickly as possible.
__________________
Mark

Grammar: The difference between "knowing your sh*t" and "knowing you're sh*t."
Reply With Quote
  #5  
Old 12-10-2014, 10:05 AM
Spike Holmes Spike Holmes is offline
Officially Welcomed to the 'Fest
Location: Frisco, TX
 
Join Date: May 2008
Posts: 541
Send a message via Yahoo to Spike Holmes
Mein Auto: 525i, G35, Subway
Most of those should be obvious but, for too many people unfortunatly they're not. Over the past 10+ years I have decided that common sense is a super power.
Reply With Quote
  #6  
Old 12-10-2014, 12:54 PM
Alex_Lounsbury Alex_Lounsbury is offline
Officially Welcomed to the 'Fest
Location: Salt Lake City Utah
 
Join Date: Apr 2008
Posts: 135
Mein Auto: Z3/F-150/Hyundai Accent
Quote:
Originally Posted by swchang View Post

If you're Christian, don't forget >= 10% (of gross, not take-home) to the Church.
Where does this come from? I've tithed my entire life, never felt it my responsibility to cover the chunk the government takes.
__________________
I can't get my mind to read "ED" as European Delivery.
Reply With Quote
  #7  
Old 12-10-2014, 02:22 PM
st_o_p st_o_p is offline
Officially Welcomed to the 'Fest
Location: NYC metro
 
Join Date: Sep 2003
Posts: 1,461
Mein Auto: '14 535ix
Your asset allocation seems off. I wouldn't put 50% international (more like 15-20% max) and definitely more than 25% large caps. I personally would put about 50% of the total in S&P500 or derivatives (matter of opinion of course).

I'd be curious about the justification/elaboration of this:
> The 1/3 rule: Keep 1/3 of your savings in a taxable account, 1/3 in a tax-"free" account, and 1/3 in a tax-deferred account.
Reply With Quote
  #8  
Old 12-10-2014, 02:32 PM
Me530's Avatar
Me530 Me530 is offline
Happily Driving
Location: Illinois
 
Join Date: Feb 2005
Posts: 5,951
Mein Auto: 2014 550i M Sport
30 year mortgage and keep your first house? Really??
__________________
2014 550i M Sport, European Delivery May 2014
2013 X3 35i, Dealer Delivery July 2012

Gone, but not forgotten:
2006 530i
, European Delivery June 2005
2008 335i Coupe 6MT, PCD November 2007
2011 550i M Sport, European Delivery May 2011


BMWCCA #350568
Reply With Quote
  #9  
Old 12-10-2014, 02:45 PM
mark_m5's Avatar
mark_m5 mark_m5 is offline
Overly Intellectual
Location: Where the money is.
 
Join Date: Sep 2006
Posts: 4,962
Mein Auto: 2002 M5, 1999 M Roadster
Quote:
Originally Posted by Me530 View Post
30 year mortgage and keep your first house? Really??
Or buy and flip houses like those get-rich-quick guys, using high-interest investment loans...
__________________
Mark

Grammar: The difference between "knowing your sh*t" and "knowing you're sh*t."
Reply With Quote
  #10  
Old 12-10-2014, 02:47 PM
TXPearl's Avatar
TXPearl TXPearl is offline
Officially Welcomed to the 'Fest
Location: Texas
 
Join Date: Apr 2010
Posts: 731
Mein Auto: 2014 650i Gran Coupe
Quote:
Originally Posted by swchang View Post
Max percent of bonds in your portfolio should be "120 - age."
I think that's supposed to be "stocks", not bonds. (otherwise, a 20 yr. old would be 100% bonds??)

Probably some good rules of thumb here, but as always there are exceptions. And some things are just too complicated to boil down to a single sentence. Someone around here has a signature tagline "keep it as simple as possible, but no simpler" that would apply here. (something to that effect, maybe the owner can step forward to clarify and take credit)
Reply With Quote
  #11  
Old 12-10-2014, 04:48 PM
Autoputzer Autoputzer is offline
Officially Welcomed to the 'Fest
Location: Destin, FL
 
Join Date: Mar 2014
Posts: 818
Mein Auto: 535i
That pretty much covers it. Yeah, there are some over-simplifications and some under-simplifications, though.

A wealthy relative told me once:

a. Borrow money only three times in life: an economically relevant education, a first "safe, reliable, appliance car," and a mortgage on an affordable house.
b. Know where you money is, and where it goes (record all spending and group it by category.)
c. Take full advantage of tax-advantaged retirement savings programs, the biggest tax break the middle class ever got (far bigger than the mortgage deduction).

I'm a car person (like everybody else here), and a perfectionist... or at least OCD/AR. So, the "Buy used. Drive it until it dies" doesn't fly with me. Also, I take a lot of road trips instead of flying for both work and pleasure. I need a reliable car, meaning one under 100k miles. A one-year old used car had four distinct types of previous owners: a rental car company, a moron (who likely didn't take car of it), an insurance company (who totaled it), and a manufacturer who bought it back just before it was to get a lemon law title. Expect any used car to have had half if its clear coat removed by detailing, and the top half of the clear coat was where almost all off the UV blockers were (past tense). I keep a beater, but it's even bought new. Although, if I lived where they salted the roads, my beater would be much more likely to be from a rental car company's used car lot.

Last edited by Autoputzer; 12-10-2014 at 05:12 PM.
Reply With Quote
  #12  
Old 12-10-2014, 05:06 PM
Autoputzer Autoputzer is offline
Officially Welcomed to the 'Fest
Location: Destin, FL
 
Join Date: Mar 2014
Posts: 818
Mein Auto: 535i
Quote:
Originally Posted by Me530 View Post
30 year mortgage and keep your first house? Really??
Yeah, pretty much... for most people... for the most part. The 30 year mortgage is more universally applicable than keeping your first house, though. Marriage, divorce, kids, parents moving in, kids moving out, etc. change things though.

Every ghetto started out as "affordable housing for working families." I've learned that there's a minimum price for a home to achieve critical mass (where houses appreciate instead of depreciate). We paid about 25% more for our house to be within walking distance from the beach. Similar neighborhoods inland developed about the same time now are declining, and declined much more during the meltdown. We bought right at the "critical mass" point for our area: $220k in 2003, 1500 sq. ft., 0.25 acres. We qualified for a $417k mortgage, but got a $200k one instead. Under normal circumstances, we'd be staying here until we went into the crematorium or nursing home. But, I had a windfall a few years ago purely due to dumb luck, so we're eventually movin' on up: maybe 2800 square feet (3 bedrooms, 3.5 bathrooms, a small office, and a three car garage with lots of storage... and a dedicated cat bathroom.

When you factor in the advantages of retirement savings, inflation, and the aforementioned critical mass, for most people the longer you stretch out that mortgage the better off you are. A co-work who was near retirement told me the first thing he was going to do in retirement was pull out enough money from his 401(k) to pay off his mortgage. He was pissed when I told him that right before retirement I was going to re-fi for thirty years, and pul out as much equity as possible (for catch-up 401(k) and IRA contributions and maybe a necessary new car or two).

Last edited by Autoputzer; 12-10-2014 at 05:13 PM.
Reply With Quote
  #13  
Old 12-10-2014, 05:26 PM
brkf's Avatar
brkf brkf is offline
Not Wearing Pants
Location: Earth
 
Join Date: May 2003
Posts: 13,675
Mein Auto: Moped
I assume the advice of keep your first house relates to the fact it was probably the cheapest house you will purchase and thus the note will almost always be low vis-a-vis your rental income to cost. I haven't touched my renter's monthly in over five years as it covers the house easily. Bought many houses since but that little gem will probably be among our assets for decades.
Reply With Quote
  #14  
Old 12-10-2014, 05:42 PM
Autoputzer Autoputzer is offline
Officially Welcomed to the 'Fest
Location: Destin, FL
 
Join Date: Mar 2014
Posts: 818
Mein Auto: 535i
Quote:
Originally Posted by brkf View Post
I assume the advice of keep your first house relates to the fact it was probably the cheapest house you will purchase and thus the note will almost always be low vis-a-vis your rental income to cost. I haven't touched my renter's monthly in over five years as it covers the house easily. Bought many houses since but that little gem will probably be among our assets for decades.
A friend of mine loaded up on good rental houses during the meltdown. His plan is to keep them until he dies and have his kids inherit them. Doing that, the 100% depreciation write-off (if he lives 28 years) will never come back as capital gains to be taxed. So, in addition to being a good investment on their own, he expects to shelter somewhere around $1M from income taxes.
Reply With Quote
  #15  
Old 12-10-2014, 05:49 PM
dwlink's Avatar
dwlink dwlink is online now
Officially Welcomed to the 'Fest
Location: St. Louis
 
Join Date: May 2007
Posts: 2,166
Mein Auto: 435i Gran Coupe
Quote:
Originally Posted by brkf View Post
I assume the advice of keep your first house relates to the fact it was probably the cheapest house you will purchase and thus the note will almost always be low vis-a-vis your rental income to cost. I haven't touched my renter's monthly in over five years as it covers the house easily. Bought many houses since but that little gem will probably be among our assets for decades.
+1

And if you bought it with a 30 year when interest rates were low, you can transfer it at a premium when interest rates and housing values go up should you decide to sell. Win-win
__________________

2015 BMW 435i GC MSport (ED Sept 29, 2014)
2004 BMW 530i (retired)
2010 Lexus RX350 AWD (hers)
Reply With Quote
  #16  
Old 12-10-2014, 07:13 PM
TXPearl's Avatar
TXPearl TXPearl is offline
Officially Welcomed to the 'Fest
Location: Texas
 
Join Date: Apr 2010
Posts: 731
Mein Auto: 2014 650i Gran Coupe
Quote:
Originally Posted by dwlink View Post
+1

And if you bought it with a 30 year when interest rates were low, you can transfer it at a premium when interest rates and housing values go up should you decide to sell. Win-win
Higher interest rates will depress housing values. Need them to stay low to benefit.
Reply With Quote
  #17  
Old 12-10-2014, 07:30 PM
swchang's Avatar
swchang swchang is online now
Family Man User
Location: Baltimore/DC area
 
Join Date: Oct 2003
Posts: 5,304
Mein Auto: BMW, M-B, Honda
Some great comments and follow-up posts. I'll try to respond in order.

Agree, helping kids learn the value of money and to start supporting themselves is an important goal.

The tithing before or after tax is not written anywhere that I've seen. I couldn't help mixing in a little bit of my own beliefs. Truth be told, the whole 10% thing (whether based on gross or net) isn't, to my knowledge, a mandatory thing in most churches. In fact, many say that if you can afford it, you should give much more than 10%.

Asset allocation: I know that's going to be different for everyone, depending on age and risk tolerance, etc. Almost all of these are obviously going to be subject to change depending on each individual's situation.

As for the 1/3 rule, that's something I heard recently and it just kind of resonated based on its simplicity. The reasoning behind it is that we really don't know where taxes will be in the future, even the distant future. Many seem to think it will go only up, but tax rates have fluctuated a lot through the years. This distribution into three buckets was advocated at a Morgan Stanley personal financial adviser talk to high net worth individuals (I snuck in, haha) who said to just spread it around in those three to help smooth out the uncertainty.

30 year mortgage: Reason for this is you want a fixed rate, especially in this environment. A 30 year gives you a lot of flexibility. You can pay the minimum each month at the lowest amount for any fixed rate mortgage, or you can pay more. If you pay about double the minimum, or whatever the monthly payment would have been for a 15 year, you can pay it off in something like 18 years. So if you want to save on interest, you can pay extra each month to your heart's content, but you still have the ability to pay less than that if you lose your job or something else happens. You don't have that flexibility with a 15 yr fixed. And since rates are a good amount lower than historical stock returns, and you get a mortgage interest rate deduction, it seems to make a lot of sense. David Bach influenced my thinking here.

Keep your first house: This was from a book by a retired cardiologist named Doroghazi. It's been a while, but I think his point was that debt is bad and you want to be free from debt as quickly as you can be, including housing debt. The fastest way to get out of a mortgage is to pay off your first one and not take on another. I think he also argued against feeling the need to "upgrade" to a bigger and better house and thereby always taking on another, larger mortgage. David Bach also talks about this, but he seems to favor renting out old houses. Personally, I have not enjoyed my stints as a landlord (residential and commercial) and would rather put money into a REIT, but that's me.

Yup, the 120 - age for bonds was a mistake on my part. I think I corrected that in a subsequent post above. And I have always like that quotation! Very appropriate.

Autoputzer, I like those bits of advice. And yeah, I can't say I follow all of these "rules" either (I don't buy used, although I do drive till they die). Again, it was just a summary of what I've gleaned thus far, but I thought it might be helpful for others who maybe haven't taken the time to read anything about personal financial planning, and also to spark some conversation about the topic. There are some very smart, savvy, and/or well-off people on this board, so it'd be a shame if I didn't get some advice from them!

brkf, I think that was one of the arguments I've heard. I've seen that advice mentioned in a couple different places, but not everyone agreed about the reasons why...

I don't profess to be a personal finance expert. This list was just my attempt to consolidate a lot of what I've picked up over the past few months. Almost every point could likely be contested with solid reasoning to back it up, so I'm always happy to hear what others think.
__________________


2004 BMW 330i • 6MT • Orient Blue Metallic • Sand Leather • Black Cube Trim • ZHP • ZCW
Reply With Quote
  #18  
Old 12-11-2014, 06:47 AM
Autoputzer Autoputzer is offline
Officially Welcomed to the 'Fest
Location: Destin, FL
 
Join Date: Mar 2014
Posts: 818
Mein Auto: 535i
Most of the people where I work (STEM's) make roughly the same thing, and are paid well. Ten or fifteen percent break through the glass ceiling. It's interesting to see were people are financially when they enter retirement. Not counting inheritances, the net worth at retirement of people I know varies from $4M to zero. The $4M guy drove a 30 year old Ford Maverick. The "zero" guy got that way mostly due to a psycho, drug-addict stripper he "adopted." I'm saving all the remaining details of that fiasco for a book I'm going to write after I retire. It's like a plane crash... horrible but interesting as Hell, and like the account of the Holocaust... needs to be told.

The lowest paid person in my department, our "Milton" (from the movie Office Space), was forced to retire early making about $20k less than the rest of us. He's worth about $2M now. Actually, since he retired I'm pretty much the Milton of our group. I literally "inherited" Milton's old project after he was forced out, and I've played musical cubicles, eventually being sent to a remote building in the woods. Our water table is too high to have basements in our buildings, otherwise I'd be in one.

I suspect any discussion about personal finance here would trigger the "buy vs. lease" debate again. There are about 2000 people where I work, and very few new, expensive cars. There are a lot of new cars, and a lot of expensive cars, but few new and expensive cars. In my group, only two of us drive new, expensive cars. The other one leases cars, trading every two or three years, and is close to flat broke. He lives paycheck to paycheck. He makes $95k a year, and had to get a loan when his roof incurred $3k damage in the last hurricane. Luckily, he's on the old pension system and his pension will be about 85% of his current take home pay. With his mortgage being paid off about the time he retires, he will actually have more disposable income in retirement than when working. I keep my cars a long time, and I only bought my last expensive one because of my unique financial situation that is the result of circumstances outside my work (about 1/3 financial astuteness and 2/3 dumb luck).

After the car lease vs. buy argument, the next financial topic would be retirement, and likely turn into a nasty political discussion. There's a movement in the U.S. to confiscate 401(k)'s and "spread the wealth around"... because "everybody deserves a decent retirement." Here's a story from the Washington Post about a new bill in Congress allowing some pension systems to reduce pensions, even for those already retired: http://www.washingtonpost.com/busine...1f7_story.html

My wife's last employer, a Fortune 500 company, ended pension accumulations for current employees and completely eliminated them for new-hires. If you worked for them, your pension would be what ever you were entitled to based on years of service up to that point, but future work would not increase you pension amount.

Milton #1 was a mathematician. There was a twenty or thirty year old probability problem that raised its head every few years that nobody could solve. It had stumped Milton #1 and the group's anointed math guru. The guru developed a near solution twenty or thirty years earlier, and it was close enough but still not right. I inherited project and problem, got a crucial hint from a new-hire mathematician who was also stumped by it, and solved it. The reason the three graduate-degree mathematicians failed was that they used all of their mathematical knowledge to attack it, and ended up outsmarting themselves. I'm an engineer, so I just solved it and got the answer. I'd solved it four years after Milton #1 retired. Just for fun, I called him up at home, told him I'd solved it, and asked if he wanted to know how I did it. "No, damnit! I'm still working on it! Ahhhhhh! (click)." The other guru was still hanging around as a consultant, guru-emeritus after his retirement. They had him review my report of the solution. I got my jab at him by putting "Schaum's Outline-Probability and Statistics" in the bibliography, and cited Schaum's "Equation 28" once in the body of the report. For all you non-STEM's out there, Schaum's Outlines are paperback books full of solved undergraduate science and engineering problems, mostly sold in college bookstores, mostly bought by struggling students who can't complete their homework assignments. Walking around with a Schaum's Outline in engineering school is like having the proverbial "L on your forehead." I did eventually find my red stapler, by the way.

Last edited by Autoputzer; 12-11-2014 at 06:49 AM.
Reply With Quote
  #19  
Old 12-11-2014, 07:37 AM
Kamdog's Avatar
Kamdog Kamdog is offline
-- Robert S. Johnson 56FG
Location: New York
 
Join Date: Apr 2007
Posts: 6,285
Mein Auto: 2008 535i
Just one tip: some investment income is taxed at regular rates, these are bonds, interest, REITs, and short term cap gains. These investments are best kept in a tax free (Roth) or tax advantaged account. Some investments are tax advantaged, dividends, LT cap gains, muni bonds, and the like. Keep those in taxable accounts.

IMO, when choosing between a Roth or a Regular retirement plan, unless you are in a very high tax place, and you won't be there later, go with Roth. Why? Because you can put more actual dollars away, and you get greater flexibility.

Start a Roth plan for your kid as soon as the kid has earned income. There is a 5 year clock on a Roth, so get that clock ticking.
__________________

535i, Monaco, Cream, Light Poplar, Comfort Seats, PP, Nav, ED.
Reply With Quote
  #20  
Old 12-11-2014, 08:03 AM
brkf's Avatar
brkf brkf is offline
Not Wearing Pants
Location: Earth
 
Join Date: May 2003
Posts: 13,675
Mein Auto: Moped
Quote:
Originally Posted by Kamdog View Post
Just one tip: some investment income is taxed at regular rates, these are bonds, interest, REITs, and short term cap gains. These investments are best kept in a tax free (Roth) or tax advantaged account. Some investments are tax advantaged, dividends, LT cap gains, muni bonds, and the like. Keep those in taxable accounts.

IMO, when choosing between a Roth or a Regular retirement plan, unless you are in a very high tax place, and you won't be there later, go with Roth. Why? Because you can put more actual dollars away, and you get greater flexibility.

Start a Roth plan for your kid as soon as the kid has earned income. There is a 5 year clock on a Roth, so get that clock ticking.
Roth isn't an option for some married couples because of income limits.
Reply With Quote
  #21  
Old 12-11-2014, 09:06 AM
Dave 330i's Avatar
Dave 330i Dave 330i is offline
The King of Common Sense
 
Join Date: Jan 2002
Posts: 469
Send a message via Skype™ to Dave 330i
Mein Auto:
The most important thing, save as much as you can. Live thriftly. Take advantage of all employer's and IRS incentives. Put your money in stocks and manage your account without an advisor who will definitely call to "help" you when your account reaches $1M. Read and make your own decisions. Do not get nervous when the market turns down becaue if you look at the Dow Jones over 20 years, that downward trend shows up as only a blip on the graph.
__________________
Everybody is a genius. But if you judge a fish by its ability to climb a tree, it will live its whole life believing that it is stupid. Albert Einstein

Swim upstream. Go the other way. Ignore the conventional wisdom. If everybody is doing it one way, there’s a good chance you can find your niche by going exactly in the opposite direction", Sam Walton.
Reply With Quote
  #22  
Old 12-11-2014, 03:10 PM
st_o_p st_o_p is offline
Officially Welcomed to the 'Fest
Location: NYC metro
 
Join Date: Sep 2003
Posts: 1,461
Mein Auto: '14 535ix
The house advice - live in your 1st house your whole life - if you can figure out your future needs by the time you are buying your first house you must be super genious. When you are single you don't think how much space you'll need when you have wife and a few kids, what the school needs are and what not. It's a great advice but can pretty much never work in real life. Now renting your old houses/apartments when you upgrade is a great way to handle the whole thing (and not take the hit of trading out).

Quote:
Originally Posted by Kamdog View Post
...

IMO, when choosing between a Roth or a Regular retirement plan, unless you are in a very high tax place, and you won't be there later, go with Roth. Why? Because you can put more actual dollars away, and you get greater flexibility.

...
I'm 100% with you on that one

Quote:
Originally Posted by brkf View Post
Roth isn't an option for some married couples because of income limits.
There's a way around that
Reply With Quote
  #23  
Old 12-11-2014, 04:11 PM
Autoputzer Autoputzer is offline
Officially Welcomed to the 'Fest
Location: Destin, FL
 
Join Date: Mar 2014
Posts: 818
Mein Auto: 535i
Quote:
Originally Posted by brkf View Post
Roth isn't an option for some married couples because of income limits.
There are Roth 401(k)'s now. Even Mitt Romney can have a Roth 401(k).
Reply With Quote
  #24  
Old 12-11-2014, 06:49 PM
Autoputzer Autoputzer is offline
Officially Welcomed to the 'Fest
Location: Destin, FL
 
Join Date: Mar 2014
Posts: 818
Mein Auto: 535i
For a married couple with adjusted gross income (AGI) over $110k , to Roth or not to Roth can make a big difference, a Porsche Carrera vs. Hyundai Sonata difference.

Assuming the same tax rates in retirement as when working, a Roth and a non-Roth have the same outcome. The differences between the two plans become important when your marginal tax rate in retirement will be lower than when you are working.

The 25 percent federal income tax bracket starts at $94,100 for a married couple without children (and assuming the standard deduction). If a working couple is somewhere over the $94,100 income mark before making retirement contributions, AND their income and consumption will be below that in retirement, the best thing to do is to go with non-Roth (tax deferred) contributions just enough to get their AGI down to $94,100, and then Roth the remaining allowed retirement contributions. With a non-Roth or tax-deferred retirement account, if your numbers are right, you can avoid the 25% now and only pay 15% later. Over a working life of 30 or 35 years, the difference can be well into six figures

If the Roth vs. non-Roth issue is a mathematical wash (same tax rate when working as when retired), there is a real big reason to go the Roth path. There is the potential for a financial perfect storm in the not-so-distant future. Our federal government is broke, having racked up $18T in debt. Social Security is broke, having $15T in unfunded obligations. Medicare is really broke, having $100T in unfunded obligations. A lot of pension funds are also broke, and will either have to be bailed out by the already-broke-itself government, or will have to reduce pension benefits. The baby boomers will stop working and paying taxes, and either be sitting or their butts, or laying on their backs in nursing homes and hospitals. There's a real chance that tax rates in the future will go up, even for the middle-class (those under the 25% tax rate threshold) to pay for all of this mess. Roth's pay all the tax now, eliminating the risk for future higher tax rates.

The other potential ass-rocket with a non-Roth retirement account is the possibility of even more severe means testing of Social Security benefits in the future. Right now, what the IRS calls "Modified Adjusted Grosse Income" (MAGI) determines how much of your Social Security income is subject to federal income tax. MAGI includes non-Roth retirement distributions, but not Roth retirement distributions. So, taking money out of your 401(k) will reduce your Social Security benefit, which will cause you to pull more out of your 401(k), which will further reduce your Social Security, and the snow ball rolls on and on.

Another advantage of Roth retirement accounts is that there are no potential adverse tax consequences of them being inherited by a non-spouse. With an inherited non-Roth retirement account, your children, 25 year old girlfriend(s), or whomever could end making mandatory withdrawals while they are still working and in a higher tax bracket.

Finally, there's the "nuclear option" of the government confiscation or "nationalization" of 401(k)'s. Because of the severe tax implications of early and accelerated withdrawals to circumvent confiscation with a non-Roth retirement account, Roth retirement accounts have a lot less risk.

I'm 55 and semi-retired. I work enough to max out my 401(k) contribution, pay my medical insurance, fund our Roth IRA's, and have gas, lunch, and beer money. Because of the all of the aforementioned risks, I'm steadily Roth-ing as much of our tax-deferred retirement savings as possible while still staying in the 15% marginal tax rate (AGI of $94,100/year in 2014). I pay the taxes with non-retirement money. The benefits of doing this will be less once my wife and I start collecting Social Security, since the Roth-ing shows up in MAGI. In the next ten years or so (dependent on possible and likely changes in the retirement age for Social Security), I'll be able to Roth most our tax-deferred retirement savings before we start getting Social Security, and never pay more than 15% income tax on those conversions.
Reply With Quote
  #25  
Old 12-11-2014, 07:28 PM
Kamdog's Avatar
Kamdog Kamdog is offline
-- Robert S. Johnson 56FG
Location: New York
 
Join Date: Apr 2007
Posts: 6,285
Mein Auto: 2008 535i
Quote:
Originally Posted by brkf View Post
Roth isn't an option for some married couples because of income limits.
Yes and no.

You can fund a regular IRA, then convert it to a Roth a bit later on. If you are up there on the income scale, you might find yourself only able to fund a non-deductible regular IRA, then, some time later on, convert that to a Roth, and you would be liable for taxes only on the gain.

There are many loopholes put in there for well off people with accountants to use, or who just have the specialized knowledge.

http://www.nerdwallet.com/blog/inves...-how-to-guide/

Quote:
The Backdoor Roth IRA

Despite exceeding the limit, you can still contribute to a Roth IRA due to a loophole. High earners cannot contribute directly to a Roth IRA, but they can contribute to a Traditional IRA and they can convert a Traditional to a Roth, which accomplishes the same thing as opening a Roth directly.

Just like the Social Security "file and suspend" technique recently hitting public awareness, those in the know have known about it for almost 14 years.

Loopholes are often intentionally built in pieces, or, individual pieces sometimes come together to form loopholes unintentionally.
__________________

535i, Monaco, Cream, Light Poplar, Comfort Seats, PP, Nav, ED.

Last edited by Kamdog; 12-11-2014 at 07:40 PM.
Reply With Quote
Reply

Bookmarks


Forum Navigation
Go Back   Bimmerfest - BMW Forums > Everything Else > Off-Topic
Today's Posts Search
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is On



Forum Jump


All times are GMT -7. The time now is 09:41 PM.


Powered by vBulletin® Version 3.8.7
Copyright ©2000 - 2015, vBulletin Solutions, Inc.
© 2001-2015 performanceIX, Inc. All Rights Reserved .: guidelines .:. privacy .:. terms