Retirement planning?
February 22, 2010 by Retirementing
Filed under retirement planning
I am 27 years old and want to start saving and planning for my retirement. I have never researched anything like this before so all this investment talk and stuff is like another language to me. Can anyone help me understand this stuff so i can make an intelligant decision for my future.
I would recommend reading retirement sections in:
http://www.moneyhowto.com/retirement_planning/
http://www.moneyhowto.com/forum/forumdisplay.php?f=27
It depends on how much risk you are willing to take. You can start by investing in money market funds or mutual funds
It is very good to start early when planning for you retirement. If you have a job the easiest way to start planning for retirement is through your 401k or 403b (403b is for educational and government employees I believe).
How a 401k and 403b works: you tell your employeer to take a percentage of your pay check, however much you want, and they deposit that percentage PRE-TAX it into a retirement account called a 401k or 403b. From there you can choose from professionally managed mutual funds where to put your money. At your age, your risk tolerance should be fairly high, so maybe 25% in a growth fund, 25% in a value fund, 10% in a bond fund, 10% in fixed income fund, and maybe 30% in a international/emerging market fund. As you get older you will want to reduce the percentage in the international/emerging markets fund and increase the others. The best part is that the money they take from your pay check doesn’t get taxed until you start to withdraw it when you are old and retired. This means that while your money is in your 401k or 403b account growing the government will not tax you for any money you make in that account which leave more money to make more tax free money, and the cycle repeats. Once you retire you will most likely be at the lowest tax rate possible and very little of what you withdraw from your retirement account will be taxed.
If your company does not offer a 401k or 403b plan then you can open up a ROTH IRA account at any online or full service brokage firm (UBS, Smith Barney, Fidelity, etc).
Here is how a ROTH IRA works: A ROTH IRA is similar to a 401k, however you have to manage it yourself. Also you can only put in a maxium of 4,000 dollars (they raise the maxium from time to time). If you have a job and only make $3,000 of TAXABLE income per year, income you declare as taxable during tax time, then you can only invest $3,000. The great thing about the ROTH IRA is that once your money is in the account it will NEVER be taxed again, PERIOD!! you make 20 million dollars off some crazy IPO in your retirement fund then you have 20 million dollars for you to retire on. A great tool for people to plan retiring because they don’t have to guess what the tax rate will be in 30 or 40 years. Even dividends you make in a ROTH IRA can not be taxed!
My suggestion is check your company about the 401k policy, because usually companies will match your contribution up to about 5%. which means if 5% of your annual salary is 3,000 dollars, and you put 5% of your pay check into your retirement account or 401k, then your company will match that 5% or 3,000 dollar in this case. Thats like free money! Also since you have mentioned you aren’t the most investing savy person, letting a mutual fund managers manage your money would remove ALOT of stress. Good Luck, send me a message if you have questions
Invest in quality stocks for long-term and don’t depend on stock trading too much. After all, you are expecting consistent income from your stock aren’t you?
Holding quality stock is like owning an excellent company; with hardworking employees struggle to generate income as much as possible for you. While stock trading is good for short term investment period, it will cost you much in transaction cost in the long-run.
to pick this kind of stock, look stocks that able to perform 15% ROE and 15% EPSGR (just for example) at least for the past 10 years. you’ll be amazed on how much junk stocks are in the stock market by just applying this method.
high in ROE show that the company is working really hard to satisfy its investors. as much as possible, they’ll meet the target set before and able to return some of the profit to its investors. this can be either in dividend or bonus issues.
high in EPSGR means the company able to grow in a growing industry. higher growth than the industry average shows that their product or services is widely acceptable to customer, another comparison that you need to do.
This good stocks are normally commit certain profits to be distributed back to their investors. If you invest for income generation, you can expect 12 to 20 total return per annum by investing in high dividend yield stock.
You can get consistent income through dividend and also capital gain potential in the long run.
Step-by-Step Stock Investing for Beginners
http://www.stock-investment-made-easy.com/index.html