Any Finance Guys out there ???

[Geiger41]

A few questions. My work (Police Department) offers a deferred comp. I have 10 years in and haven't put anything in ever. I am thinking about putting in $500 per check for the next 15 years, (When I retire)

The wife, who does neurosurgery, her company offers a 403B plan with a 25% match up to $4000 a year. So if she puts in $16,000 per year, they will put in $4000 for her. She hasn't put anything in that yet also. But we are thinking about her putting $16000 per year and get the maximum match of $4000

I am done working in 15 years, I want her to be done working in 15 years also. So we are done the same time.

I understand the deferred comp can be taken out when I retire. I would only be hit with taxes. As far as her 403B, if she took any money out before 59 1/2 years old (31 years from now !!!) she would get hit with not only the taxes BUT a 10% penalty fee. Even with the penalty fee she would be making a profit due to the 25%match.

So basically I am looking for advise as to what I should do with both of these.

 

[Wayloncle]

Following.
I'm financially ignorant, not irresponsible, but I don't know anything about 401K's and stuff. But I'm about to start a new job and supposedly the company rocks when it comes to matching. I got a big packet that probably explains what I need to know, I just need to read it.

 

[jawsf16]

For your wife, contribute at least the match - it is essentially free money from the company...

I would want more info on the deferre comp. Roth IRA may be a better option, pay tax now, but not later and you get an investment opportunity. What is the rate on deferred comp?

 

[Geiger41]

Not sure the rate of the deferred comp as I am not sure about the whole thing at all...I thought the rate had to deal with the market?

 

[Julian]

The deferred comp plans I've been involved with had fixed rates of return.

 

[Murf'n'surf]

I'm far from a finance guy but I can point you to Suze Orman to research the basics of retirement costs. http://www.suzeorman.com/
You need to figure out how much money you need to live per month after retirement. Everyone is slightly different so you'll need to do some of the worksheets/calculations that she has. It sounds like you have aspirations to retire early which will require even more money in savings than your typical 60 something retiree.

 

[Shuck Water]

I work in finance and capital markets, but am not a CFP. Deferred comp is great if you are bad with money. Returns are usually not the best and you can do much better managing your own investments. As for your wife, quite simply it's free money, period. Take advantage of every single dollar and max it out every year. The $4k is 8 of your deferred paychecks for free.

 

[Geiger41]

@Shuck Water "You can do much better managing your own investments" Can you enlighten me on this a little more ???

 

[4x15mph]

Deferred comp for me meant that I could withhold a percentage of comp (I.e. Commission) and have it paid out in the future which is also when I would be taxed on it. It can help from a tax standpoint since by deferring you can avoid hitting the higher tax bracket of you were to receive all of the comp in a given year.

You can probably defer it and then have it paid out annually in the future. I chose this to line up with my kids college years which start shortly.

Your wife's deal sounds like another great way to save money regardless of the match.

 

[OCMD]

I decided that when it came time to end one of my careers, I wanted to make sure I wouldn't have to work if I didn't want to. That is why you have to do the deferred comp. You just have to. I've been adding just a little bit per check ($200), for the last 15 or so years on the job - police. We haven't had a raise for years, but when we did get raises, I usually put that into the deferred comp. You won't miss it. Are you listening?

With our department, you invest it as you like, with the multitude of choices they provide. There is no guaranteed rate of return. Since this was essentially play money for me, I gambled in high risk stuff, and overall had a great return. I should have done it for my first 15 years on the job but I didn't listen to those smarter than I. Now? I have a fat 350K cash sitting in there, plus a nice pension, and I leave this s*&%hole in 312 days, when my DROP expires. (Another idiotic 'buy-out' thing this county does to "save" money) which will put another 250K in my pocket - extended buy out in exchange for keeping my "wisdom & experience" around for the new people. Little do they know that all this does is keep bitter old men around three more years, butting heads with the idiots that run the place. But I digress. Bottom line? Tell the old lady to max out for the free money - that is a no brainer. You? Throw at least $150 a check into deferred comp. Invest in stocks. You won't regret it 15 years from now. Come next Christmas? I'm done with the streets. I'll sit back and cherry pick legal cases that I can have fun with messing with those that screw others, or ones that are easy cash. Or do nothing and tool around on my previously owned Yamaha until I am pushing up daisies.

 

[jawsf16]

Not sure how deferred comp is better than a Roth ira. At 200 a month, that only raises taxable income by 2400 a year, that same 2400 and its earnings compounded could be drawn at 59.5 with no penalties. Or you can draw on the principal anytime with no penalties, all tax free at that point. Assuming taxes increase, it seems like a wiser choice. A, I missing something? If you have the discipline I say max out Roth ira and do the delayed comp. perhaps best of both worlds.

Live below your means now so you can live above them later...

 

[tdonoughue]

I have been around enough to know that I don't know enough about this. I have a guy up in New Jersey who has proven his worth several times over. Including recommending several investments that were to his personal disadvantage, but served those close to me (family) very well. PM me and I would be happy to give you his details.

My advice, whether you use my guy or someone else: get a professional.

 

[davel501]

+1 to getting a professional. You are starting so late in the game that you are probably looking at doing a Dave Ramsey program to kill your expenses and allow you to save everything you can.

 

[Evildwarf]

Geiger41,
I'm also in public safety (the fun side, firefighter). We have a 401A plan and a 457B which I believe is a deferred comp plan. Are your payroll deductions pre-tax? If they are then that is an excellent "bonus" in your plan and you should take advantage of any match that your employer offers. Definitely have the spouse max out her contributions in her plan to get the match if it's in the budget. Years ago I opted out of the traditional "defined benefit" (22 and out) old pension in search of the "huge" returns promised by the new pension program. Stupid, stupid, stupid. After 911 as firefighters everywhere grew in stature in the public esteem you could hear the toilet flushing as my retirement accounts were flushed away with the rest of the American economy. I know, wa wa wa, you want some cheese with your wine? Obviously no one here is doing too badly as we have disposable income for fast, floating, jet powered toys.

Anyhow, I digress. If you can direct your plan investments then get a good mix of risk (high to low) in your portfolio, get the employer match, max out the contributions, consult with a pro retirement planner, pet a stray dog, be nice to people, and life will be the odd mix of joy and sorrow that it always has been.

Oh, and OCMD, sounds like its time for you to (as we say in the fire station) "throw your shit in the floor and walk out). A time honored tradition that the old timers look forward to. I'm looking at 2 decades riding a red truck and still loving it but the time will come when my shit is piled on the floor and the door is hitting me in the ass as it swings shut.

 

[4x15mph]

x10 on getting a professional although do your homework on the professional that you pick. There are a lot of costs that can eat at your returns!

I should have mentioned that you should be maxing out all other contributions first which include Roth, 401k, college savings plans (i.e. 529). On top of that, it is equally important not to have all of this savings while not paying excessive interest (i.e. mortgage, car loans, credit card debt).

@OCMD, provided a great real-world scenario.

 

[tdonoughue]

I should have noted: on the professional--I think the biggest factor his how you pay him.

Some charge by the hour. Then you can plan on needing lots of meetings and calls for him/her. And you may or may not get good results.

Some charge by the transaction. Then you can expect lots of recommendations to buy and sell stuff (the mother-in-law had one of these; the guy would sell 300 shares of something in 3 lots, just to be able to charge her 3x).

Some charge by getting a percentage of assets under management. Something on the order of 0.25% per quarter. So, if I make money, he makes money. This is the arrangement I have with my guy. It aligns our interests to the lowest cost and highest returns.

 

[Big Shasta]

You need a professional immediately. There are way too many options for you especially since you are trying to retire early. Tax situations both now and in the future dictate what you should be doing. That 25% match sounds very inviting, but you need a professional to help you realize all the consequences of maxing that out. I always tell people to max out a roth ira for retirement but you are a special case since you'll need money to live before your normal retirement age.

 

[Julian]

All great advice....be sure if you hire someone to keep a close eye on things. For example. if you use someone like @tdonoughue suggests that charges a % of your , periodically check to be sure it is financially the right deal - see how many trades he/she made and see how much he made. If his cost per trade is too high, then ask him/her about that.

I use a split of these approaches. 75% of my money is in cost per trade, and 25% in a fee setup. I do this because typically you aren't turning over more than 25% of your investments in a year, so why pay fee to manage investments that are just sitting there!

• DEFINATELY max out the 401K!
• If the deferred comp plan offers a fixed return of >6%-I'd go with that. Otherwise put it in a tax deferred investment.
• Do go put your numbers into one of the retirement caclulators to check your savings/pension will give you what you expect.

 

[billyb]

Curious...does anyone's workplace match 100% on their 401k?

 

[Murf'n'surf]

Mine does but Im in a very small company.