Late start investing

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Topic Author
kvee1967
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Joined: Thu Aug 12, 2021 6:50 pm

Late start investing

Post by kvee1967 »

I'm a 54 year old who has a made a lot of bad choices in my life. Due to these bad choices I haven't saved anything for retirement. I've recently turned my life in a positive direction. I just started a new job and they offer a 401k after 90 days of employment. After a year of employment they offer 100% match up to 5%. In the meantime I've opened a traditional IRA using the 3 fund portfolio with an 80/20 allocation. 65% VTI,15% VXUS and 20%VGIT. I was wondering should I wait until my year is up to start funding my 401k when the match kicks in or start at the 90 day point. The employer uses T Rowe Price where the fees are a little high. I've already saved a 6 month emergency fund as well as a 4 month expense buffer fund so that a large percentage of my pay can be used for investments. I would greatly appreciate any and all advice from the group.
Sam_957
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Re: Late start investing

Post by Sam_957 »

I'd follow this: https://www.bogleheads.org/wiki/Priorit ... nvestments

So probably fund your IRA or Roth IRA where you can pick low cost funds and then start funding the 401k. If you're starting late, no need to wait longer. Congrats on making a change and getting your finances in order.
My other vehicle is an index fund.
tashnewbie
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Re: Late start investing

Post by tashnewbie »

Sounds like you’ve already filled an IRA for 2021 ($7k for you). If that’s not true, then I’d fill a Roth IRA for 2021.

If you have more you can save this year, I’d contribute whatever you can after your 90 day waiting period (if you started the new job this month, you’d only have ~2 months to contribute in 2021).

In 2022, I would max the Roth IRA first, then I would contribute to the 401k. I would contribute at least 5% starting at your 1 year anniversary, so that you get the full employer match available. Before that anniversary, I’d contribute as much as I could (but not so much that I couldn’t contribute 5% from the anniversary through the end of the year). The annual max you can contribute to 401k, if your employer allows catch-up contributions, is $26k.
260chrisb
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Re: Late start investing

Post by 260chrisb »

Welcome to the forum and congrats on getting things moving in a better direction! Well done. You're off to a good start and in a good place. Look forward not back and take full advantage of the next 10 years before you retire assuming retirement at 65. I'd get into the 401K on day 91 to the best of your ability, and get used to not having all of your money for many years as it's building wealth for you. Keep focused and don't repeat the past. Good luck to you!
JBTX
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Re: Late start investing

Post by JBTX »

kvee1967 wrote: Thu Aug 12, 2021 7:19 pm I'm a 54 year old who has a made a lot of bad choices in my life. Due to these bad choices I haven't saved anything for retirement. I've recently turned my life in a positive direction. I just started a new job and they offer a 401k after 90 days of employment. After a year of employment they offer 100% match up to 5%. In the meantime I've opened a traditional IRA using the 3 fund portfolio with an 80/20 allocation. 65% VTI,15% VXUS and 20%VGIT. I was wondering should I wait until my year is up to start funding my 401k when the match kicks in or start at the 90 day point. The employer uses T Rowe Price where the fees are a little high. I've already saved a 6 month emergency fund as well as a 4 month expense buffer fund so that a large percentage of my pay can be used for investments. I would greatly appreciate any and all advice from the group.
If you have the money to do so, and can still fully fund your IRA, I would go ahead and start funding the 401k, unless the fees are exorbitant. Chances are somewhere down the road they either change their plan, or you roll it into a new employer 401k, or eventually you roll it into a rollover IRA.

Good for you on your current direction. No need to dwell on the past, except to learn from it.
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arcticpineapplecorp.
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Re: Late start investing

Post by arcticpineapplecorp. »

welcome to the group and congratulations for getting on the right path!

only three questions I have are:

1. why trad IRA instead of Roth IRA? (nothing wrong with this decision per se but hearing how you came to that decision could determine if it was the right choice or not). Previous posters mentioned Roth IRA, but we don't know if Roth is better than trad in your situation. Are you in a high tax bracket and expect to be in a lower bracket in retirement? Are you trying to reduce taxes now regardless of what tax bracket you're in? More info is needed as to whether trad is the way to go instead of Roth IRA.

2. why intermediate term treasury rather than total bond market? Again, nothing wrong with that choice per se, just interested in how you decided on that rather than TBM?

3. is 80/20 the right mix based on your age? Again, there's nothing wrong with this per se, but do you understand the risk with an 80/20 portfolio? Are you trying to make up for lost time with higher returns? That sort of thing.

a. As you're rounding into retirement age, you'll want to reduce risk (80/20 is aggressive). Do you have a plan to reduce risk as you approach retirement?

b. Also, if the market were to fall by 50% as it did before using numbers from 1973-1974 bear market (50% decline) this is how a 80/20 portfolio would have fared:

Image

would you be ok if your portfolio declined by 35%?

If you've thought through these issues, great. Keep on saving!
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Pragmatix87
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Re: Late start investing

Post by Pragmatix87 »

arcticpineapplecorp. wrote: Thu Aug 12, 2021 9:16 pm
b. Also, if the market were to fall by 50% as it did before using numbers from 1973-1974 bear market (50% decline) this is how a 80/20 portfolio would have fared:

Image

would you be ok if your portfolio declined by 35%?

If you've thought through these issues, great. Keep on saving!
How long did it take for the portfolios to recover after those drops in 1973-1974? For example, if you'd had 80/20 and thus your portfolio dropped 35%, were you stuck for a couple years or for a decade+ before it not only recovered the loss but also got the gains you needed?
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arcticpineapplecorp.
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Re: Late start investing

Post by arcticpineapplecorp. »

Pragmatix87 wrote: Thu Aug 12, 2021 9:30 pm
arcticpineapplecorp. wrote: Thu Aug 12, 2021 9:16 pm
b. Also, if the market were to fall by 50% as it did before using numbers from 1973-1974 bear market (50% decline) this is how a 80/20 portfolio would have fared:

Image

would you be ok if your portfolio declined by 35%?

If you've thought through these issues, great. Keep on saving!
How long did it take for the portfolios to recover after those drops in 1973-1974? For example, if you'd had 80/20 and thus your portfolio dropped 35%, were you stuck for a couple years or for a decade+ before it not only recovered the loss but also got the gains you needed?
not sure, but remember a 35% decline requires a 55% gain to recover from that loss.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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tennisplyr
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Re: Late start investing

Post by tennisplyr »

Save as much as you can and reduce expenses where you can. This Vanguard tool could be useful in developing an appropriate AA:

https://retirementplans.vanguard.com/VG ... -YYA4-CW3H
“Those who move forward with a happy spirit will find that things always work out.” -Retired 13 years 😀
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ruralavalon
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Re: Late start investing

Post by ruralavalon »

Welcome to the forum :)

Even starting at age 54, you can make a difference in your retirement with a good plan.

It's good to see that you have an emergency fund, are going to be using tax-advantaged accounts, and are picking good low expense ratio funds to use in your IRA.

The most important investing decision you can make is to establish a high rate of contributions. "Savings rate is the most important retirement savings decision, not only because of the math but because of the way it drives your financial mindset and habits. The basic raw stock/bond risk decision comes second. And the finer details--index or active, factors or total market, alts or no alts--are a distant third." Forum discussion on Jonathan Clements’ article "Show me the Money".

About how much (in dollars) do you believe you might be able to contribute annually to investing (total, all acvounts)?

kvee1967 wrote: Thu Aug 12, 2021 7:19 pm I'm a 54 year old who has a made a lot of bad choices in my life. Due to these bad choices I haven't saved anything for retirement. I've recently turned my life in a positive direction. I just started a new job and they offer a 401k after 90 days of employment. After a year of employment they offer 100% match up to 5%. In the meantime I've opened a traditional IRA using the 3 fund portfolio with an 80/20 allocation. 65% VTI,15% VXUS and 20%VGIT.

In my opinion that asset allocation is with the range of what is reasonable. In my opinion those are reasonable fund choices for your IRA.

How much have you contributed to your IRA for 2021?

kvee1967 wrote: Thu Aug 12, 2021 7:19 pmI was wondering should I wait until my year is up to start funding my 401k when the match kicks in or start at the 90 day point. The employer uses T Rowe Price where the fees are a little high. I've already saved a 6 month emergency fund as well as a 4 month expense buffer fund so that a large percentage of my pay can be used for investments. I would greatly appreciate any and all advice from the group.
No, don't wait if there are any decent funds offered in you employer's 401k plan.

What funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios.

Do you have any debt? If so what types, amounts and interest rates?

What is your current tax bracket,both federal and state? What is your tax filing status?

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Please see this for format: Asking Portfolio Questions.

Here is a general account funding priority that usually works well for many people (when there is no high interest debt or HSA use):
1) Contribute to the work-based plans (401k, 403b, 457, SIMPLE IRA, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based accounts; and
4) Contribute to a taxable investing account.

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA." Please see the wiki article "Prioritizing investments", link.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
kvee1967
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Late start investing

Post by kvee1967 »

[Merged into previous discussion -- moderator oldcomputerguy]

I recently started a new job and it offers a 401k after 90 days, The company matches 100% up to the first 5% but not until after the first year of employment. I recently opened a traditional IRA in which I've contributed 4,000 so far. I was wondering should I wait for the year before contributing to the 401k or should I begin right at the 90 day point. The company also goes through T.Rowe Price for the 401k. Do they offer low cost funds similiar to Vanguard?
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gwe67
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Re: Late start investing

Post by gwe67 »

kvee1967 wrote: Wed Sep 01, 2021 4:10 pm I recently started a new job and it offers a 401k after 90 days, The company matches 100% up to the first 5% but not until after the first year of employment. I recently opened a traditional IRA in which I've contributed 4,000 so far. I was wondering should I wait for the year before contributing to the 401k or should I begin right at the 90 day point. The company also goes through T.Rowe Price for the 401k. Do they offer low cost funds similiar to Vanguard?
kvee1967 wrote: Thu Aug 12, 2021 7:19 pm I'm a 54 year old who has a made a lot of bad choices in my life. Due to these bad choices I haven't saved anything for retirement. I've recently turned my life in a positive direction. I just started a new job and they offer a 401k after 90 days of employment. After a year of employment they offer 100% match up to 5%. In the meantime I've opened a traditional IRA using the 3 fund portfolio with an 80/20 allocation. 65% VTI,15% VXUS and 20%VGIT. I was wondering should I wait until my year is up to start funding my 401k when the match kicks in or start at the 90 day point. The employer uses T Rowe Price where the fees are a little high. I've already saved a 6 month emergency fund as well as a 4 month expense buffer fund so that a large percentage of my pay can be used for investments. I would greatly appreciate any and all advice from the group.
T. Rowe fees are high. You answered your own question.
VTI 48%, VXUS 12%, BND 40%
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JoeRetire
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Re: Late start investing

Post by JoeRetire »

kvee1967 wrote: Thu Aug 12, 2021 7:19 pmI've recently turned my life in a positive direction.
Congratulations!
I just started a new job and they offer a 401k after 90 days of employment. After a year of employment they offer 100% match up to 5%.
That's a pretty good deal. Take advantage of all that free money as soon as possible.
I was wondering should I wait until my year is up to start funding my 401k when the match kicks in or start at the 90 day point.
Don't wait. Start funding it as soon as you can as much as you can.
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ruralavalon
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Re: Late start investing

Post by ruralavalon »

Welcome to the forum :) .

Congratulations on turning yourself around. Age 54 is not too late to make a big difference in your retirement, with a good level of contributions and a reasonable plan.

It's good to see that you have an emergency fund. In my opinion your fund choices in the new IRA are reasonable.

kvee1967 wrote: Thu Aug 12, 2021 7:19 pm I'm a 54 year old who has a made a lot of bad choices in my life. Due to these bad choices I haven't saved anything for retirement. I've recently turned my life in a positive direction. I just started a new job and they offer a 401k after 90 days of employment. After a year of employment they offer 100% match up to 5%. In the meantime I've opened a traditional IRA using the 3 fund portfolio with an 80/20 allocation. 65% VTI,15% VXUS and 20%VGIT. I was wondering should I wait until my year is up to start funding my 401k when the match kicks in or start at the 90 day point. The employer uses T Rowe Price where the fees are a little high. I've already saved a 6 month emergency fund as well as a 4 month expense buffer fund so that a large percentage of my pay can be used for investments. I would greatly appreciate any and all advice from the group.
Start contributions as soon as you can, as much as you can. At age 54, the maximum annual employee contribution to a 401k is $26k.

At age 54 the maximum annual contribution for an IRA is $7k.

Establishing a high rate of contributions is the most important investing decision you can make. Forum discussion.

T.Rowe Price fund expense ratios are not high, they are low but just not as low as Vanguard or Fidelity. For example T. Rowe Price Equity Index 500 (PREIX) has an expense ratio of just 0.19% which is a low expense ratio.

Anyway, we don't know whose funds or which funds are offered in the plan.

What funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios.

Are plan participants charged any fees in addition to the fund expense ratios?

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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dratkinson
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Re: Late start investing

Post by dratkinson »

The short answer. You want to invest as soon as possible. Why? So you don't waste a contribution year.


The long answer.

I didn't find this information until I was 58 and retired, so you're ahead of me. I did okay. Assume you'll do better.

If you'll edit your OP (original post, original poster) in the format requested in the sticky "Asking Portfolio Questions", we'll be much better able to answer all of your questions.
--Copy this sticky to your PC: viewtopic.php?f=1&t=6212
--Edit it in Word. (Overwrite existing data, with your information.) Provide complete information. (Omitted information = omitted advice.)
--We are specifically interested in the information on your 401k options. (We need it to suggest which give the biggest bang for your buck.)
--When done with all edits, then click the "pencil" icon in your OP to edit it. (Paste your new information into the bottom of your OP and resubmit.)

And we'll resume from there.


Welcome.
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Miriam2
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Re: Late start investing

Post by Miriam2 »

kvee1967 wrote: I'm a 54 year old who has a made a lot of bad choices in my life. Due to these bad choices I haven't saved anything for retirement. I've recently turned my life in a positive direction. I just started a new job and they offer a 401k after 90 days of employment. After a year of employment they offer 100% match up to 5%. In the meantime I've opened a traditional IRA using the 3 fund portfolio with an 80/20 allocation. 65% VTI,15% VXUS and 20%VGIT. I was wondering should I wait until my year is up to start funding my 401k when the match kicks in or start at the 90 day point.
No waiting! Start the minute you can!
kvee1967 wrote: The employer uses T Rowe Price where the fees are a little high.
Don't worry about their fees.

The key here is that you have no 401k now (apparently) and you're getting closer to retirement. So the object is to get that 401k up and running and pile all you can into it as often and as regularly as possible to get as much benefit from compounding in the years you have left to do this. If it is T. Rowe Price, so be it. You won't get very far worrying about higher fees and not funding your 401k.

My employer used T. Rowe Price for the 401k and I retired with a nice retirement account. Even though their funds are actively managed and the cost is higher than index funds, their funds are excellent and their costs are actually not as high as many other firms. Jack Bogle said good things about T. Rowe and their funds and fund management. I really appreciated their funds - most are so good they are closed to retail investors. Their Capital Appreciation fund (PRWCX) is fabulous - it's so fabulous I took it with me in kind when I rolled my 401k into Vanguard upon retirement :mrgreen: . The T. Rowe Target Date funds are very good (note - they have an aggressive TDF series and a moderate TDF series - so look at them).

So if all you have in your 401k are T. Rowe funds, you'll do fine - so long as you invest as much as you can with every paycheck. It's the amount you save and invest that will determine your financial future. :happy
kvee1967 wrote:I've already saved a 6 month emergency fund as well as a 4 month expense buffer fund so that a large percentage of my pay can be used for investments. I would greatly appreciate any and all advice from the group.
Great beginning! A safety net is really important 8-)
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kvee1967
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Late start investing

Post by kvee1967 »

[Thread merged into here --admin LadyGeek]

I recently opened a traditional IRA with the 3 fund portfolio: VTI,VXUS and BND. I recently started a new job that offers a 401k with 100% employer match up to 5% after a year of employment. Since I'm only planning to contribute enough to get the match I've decided to open a brokerage account. I'm new to investing and I would really appreciate some input on what funds I should have in my brokerage account. Should I have an S&P 500 Index even though I have VTI in my IRA. What are some thoughts on VGT?
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9-5 Suited
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Re: Late start investing

Post by 9-5 Suited »

How come you’re only planning to contribute enough to the 401k to get the match? Do you have terrible fees in the 401k? If not, then typically it’s best to max the 401k before starting a brokerage account for long-term investing.

At the “starting out” stage it’s usually best to keep it simple and begin with the common wisdom before getting cute. That means bonds go in tax protected accounts and stock in taxable brokerage (pending the answer to the above question). Most bond interest is taxed unfavorably as regular income, which is the reason for that guidance. (Many caveats apply as you get deeper into it).

Think of your portfolio as one big pie. Place the assets where they will be most tax efficient vs. optimizing each account.
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Re: Late start investing

Post by LadyGeek »

kvee1967 - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

(Thanks to the member who reported the post and provided a link to this thread.)
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kvee1967
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Re: Late start investing

Post by kvee1967 »

The company uses T. Rowe Price and the fees are a little high. The fund expense ratios are high as well and that's why I was leaning toward a brokerage account
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Re: Late start investing

Post by retired@50 »

kvee1967 wrote: Thu Sep 16, 2021 7:14 pm The company uses T. Rowe Price and the fees are a little high. The fund expense ratios are high as well and that's why I was leaning toward a brokerage account
If you could provide some specific examples of what you consider to be "a little high", it might allow the forum members to evaluate the situation more clearly.

Unless the expenses are over 1.5%, you're probably better off using the 401k plan with the matching dollars.

Also, you could consider posting all the fund options, along with expense ratios and ticker symbols as described in the "Asking Portfolio Questions" thread.
See link: viewtopic.php?f=1&t=6212

Regards,
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Re: Late start investing

Post by ruralavalon »

kvee1967 wrote: Thu Sep 16, 2021 6:41 pm [Thread merged into here --admin LadyGeek]

I recently opened a traditional IRA with the 3 fund portfolio: VTI,VXUS and BND. I recently started a new job that offers a 401k with 100% employer match up to 5% after a year of employment. Since I'm only planning to contribute enough to get the match I've decided to open a brokerage account. I'm new to investing and I would really appreciate some input on what funds I should have in my brokerage account. Should I have an S&P 500 Index even though I have VTI in my IRA. What are some thoughts on VGT?
Vanguard Information Technology ETF (VGT) is a sector fund, and is not diversified. In my opinion in any type of account it is safer to stick with a much more diversified funds like Vanguard Total Stock Market ETF (VTI) or Vanguard S&P 500 ETF (VOO).

First make maximum possible use of all available tax-advantaged accounts.

What funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios.

Are plan participants charged any fees in addition to the fund expense ratios?

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Don't limit yourself to contributing just enough to the 401k to get the employer match, unless the funds offered in the 401k plan are truly horrible. You only need one or two decent funds offered in a 401k to make it worthwhile to use to the fullest.

In general it's usually better to make maximum annual contributions to all available tax-advantaged accounts as a priority ahead of contributions to a taxable brokerage account.

Here is a general account funding priority that usually works well for many people (when there is no high interest debt or HSA use):
1) Contribute to the work-based plans (401k, 403b, 457, SIMPLE IRA, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based accounts; and
4) Contribute to a taxable investing account.

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA." Please see the wiki article "Prioritizing investments", link.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Late start investing

Post by willthrill81 »

I highly recommend that you check out Pete the Planner's series from a few years back on starting from scratch in your 50s.
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kvee1967
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Late start investing

Post by kvee1967 »

[Thread merged into here --admin LadyGeek]

I'm a late start inexperienced investor and I was looking for advice. My job offers a 401k through T. Rowe. Price with 100% match for the first 3% and a 50% match for the last 2%. I already started a traditional IRA since I only make about 32,000 annually. I chose an 80/20 allocation since I'm older with very little retirement savings. I chose 70% VTI, 10% VXUS and 20% BND. The employer match doesn't start until after the first year of employment. The plan offers a 2040 target date fund with a 0.40% expense ratio, an equity index 500 fund with a 0.19% expense ratio, a balanced fund with a 0.61% expense ratio and a large blend growth fund with a 0.76% expense ratio. I'm trying to decide which to invest in. All advice would be greatly appreciated!
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Re: Late start investing

Post by Thesaints »

kvee1967 wrote: Wed Sep 29, 2021 3:52 pm I'm a late start inexperienced investor and I was looking for advice. My job offers a 401k through T. Rowe. Price with 100% match for the first 3% and a 50% match for the last 2%. I already started a traditional IRA since I only make about 32,000 annually. I chose an 80/20 allocation since I'm older with very little retirement savings. I chose 70% VTI, 10% VXUS and 20% BND. The employer match doesn't start until after the first year of employment. The plan offers a 2040 target date fund with a 0.40% expense ratio, an equity index 500 fund with a 0.19% expense ratio, a balanced fund with a 0.61% expense ratio and a large blend growth fund with a 0.76% expense ratio. I'm trying to decide which to invest in. All advice would be greatly appreciated!
Definitely invest at least up to the matching threshold: a 100%, or 50% match would likely be your main source of return over any not too long timeframe.
I'm a little confused, yoour allocation is 80/20 because you want to make up for the time lost, or is 80/20, because at your age/income 100/0 seems too risky ?
Also, your employer offers VTI, VXUS, and BND and a 2040 target date fund, etc. ? Or you have VTI, VXUS and BND in your taxable account ?

A target date fund could not necessarily be the best option for you a 500-index at 0.19% is already expensive. Are those four the only options offered ?
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Re: Late start investing

Post by SantaClaraSurfer »

1. Read through threads and wiki here and really immerse yourself in the basics.

2. Employer match is a great deal.

3. I am in a different, but also somewhat 'late start' situation.

My wife and I have resisted the urge to try to "catch up" and are happy with our diversified, 'steady as it goes' asset allocation.

For what it's worth, our ages average to about 48 and our allocation is vicinity 70% equities / 30% fixed income.
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Re: Late start investing

Post by LadyGeek »

kvee1967 - (As noted earlier) In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

Is there any reason you are starting a new discussion each time?

To avoid starting a new thread, view this thread (what you are doing now), then click on the "Post Reply" icon at the top or bottom of this page.

(Thanks to the member who reported the post and provided a link to this thread.)
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Re: Late start investing

Post by ruralavalon »

kvee1967 wrote: Wed Sep 01, 2021 4:10 pm [Merged into previous discussion -- moderator oldcomputerguy]

I recently started a new job and it offers a 401k after 90 days, The company matches 100% up to the first 5% but not until after the first year of employment. I recently opened a traditional IRA in which I've contributed 4,000 so far. I was wondering should I wait for the year before contributing to the 401k or should I begin right at the 90 day point. The company also goes through T.Rowe Price for the 401k. Do they offer low cost funds similiar to Vanguard?
I suggest contributing another $3k this year so that you make the maximum annual contribution for an IRA of $7k. I suggest next year setting up automatic contributions to your IRA every pay period at an amount that will total the $7k IRA maximum each year.

Start contributions to your employer's 401k plan as soon as practical, as much as practical. Don't wait.

What funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios.

T. Rowe Price offers some funds with low expense ratios, like T. Rowe Price Equity Index 500 (PREIX) ER 0.19%. That is a low expense ratio but just not as low as Vanguard, Fidelity or Schwab.

You said "The plan offers . . . . an equity index 500 fund with a 0.19% expense ratio," so apparently PRIEX is offered in your employer's 401k plan. That is a good fund to use, it is very diversified with a low expense ratio.

But we don't know what other specific funds are offered in your employer's 401k plan. There might be something better or something else to add. This wiki article lists some other very diversified T. Rowe Price index funds which have low expense ratios, T. Rowe Price.

Are plan participants charged any fees in addition to the fund expense ratios?

Once the employer match begins contribute at least enough to your employer's 401k plan to get the full employer match each year.

How much (in dollars) will you need to contribute annually to get the full employer match available?

About how much (in dollars) do you expect that you may be able to contribute annually to investing (total, both accounts)?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Late start investing

Post by pingo »

kvee1967 wrote: Wed Sep 29, 2021 3:52 pmI chose an 80/20 allocation since I'm older with very little retirement savings. I chose 70% VTI, 10% VXUS and 20% BND.
It is tough to greenlight 80/20 without more info, but I will say that it is the most aggressive allocation I would feel comfortable greenlighting.

80/20 stocks-to-bonds is an aggressive growth portfolio.
80/20 has provided only slightly lower returns vs 100% stocks, but with lower volatility, relatively.

High volatility won't mean much for a few years, anyway, since you're starting with $0 in the 401k. New contributions will soften account volatility.

kvee1967 wrote: Wed Sep 29, 2021 3:52 pmThe employer match doesn't start until after the first year of employment.
With $32,000 annual income, you should maximize 2021 tax-year contributions for your Traditional IRA (up to $7,000, in your case). That statement appears to be valid whether you file as single, head of household, married filing jointly, or as a qualifying widower.

However, IF you are married filing separately, forget about the TIRA and immediately put all future retirement savings into the 401k.

(Source: IRS.org - 2021 IRA Deduction Limits when there's an employer-sponsored retirement plan.)

By January 1, 2022, at least 5% of your salary should go to your 401k (~$1600/year). If you can contribute more, you decide:
- whether to contribute more to the 401k. (Simplest.)
- whether to put the additional contributions into the Traditional IRA. (Lowest cost.)

kvee1967 wrote: Wed Sep 29, 2021 3:52 pmMy job offers a 401k through T. Rowe. Price [...]
T. Rowe Price doesn't get much ink around here, but I still count them with the good guys.
kvee1967 wrote: Wed Sep 29, 2021 3:52 pmThe plan offers a 2040 target date fund with a 0.40% expense ratio, an equity index 500 fund with a 0.19% expense ratio [...]
I always liked T. Rowe Price target funds, even at the (previous) full retail ER 0.68%-0.78%. I now see that TRP's Target/Retirement ERs have come down in recent years.

In your case, a T. Rowe Price target fund at ER 0.40% is a steal.

Think of it this way: If the best options in a hypothetical 401k were a 500 Index fund for ER 0.01% and a T. Rowe Price Target date fund for 0.22%, the target fund would be considered low cost, in isolation, despite the cost advantage of the 500 fund.

That hypothetical 401k ER difference is the same as the actual ER difference in your plan.

My preference would be to select the T. Rowe Price target date fund that is closest to holding 20% bonds, fixed income and/or cash. It offers complete diversification in a single fund with the benefit of simplicity for you. The fund will automatically rebalance for you and it will slowly reduce its risk over time by increasing bonds, fixed income and cash.

That way you also won't have to worry about allocating asset classes across your different accounts. You would simply rebalance the TIRA, as needed.
Last edited by pingo on Mon Nov 22, 2021 11:13 pm, edited 2 times in total.
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Re: Late start investing

Post by kvee1967 »

I've already contributed the $7000 max for 2021 to my IRA and I can start contributing to the 401k at the end of this month. Unfortunately, the employer match doesn't start until after my first year of employment. Would you suggest contributing more than the 5% or just enough to get the match. Also if I go with the target date fund would it be wise to keep the 3 fund portfolio in my IRA or change up
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Re: Late start investing

Post by Flyer24 »

The key to catching up on your retirement is your contribution rate. As mentioned before, go ahead and start investing in your 401k as much as you can.
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Re: Late start investing

Post by willthrill81 »

kvee1967 wrote: Wed Sep 29, 2021 7:15 pm I've already contributed the $7000 max for 2021 to my IRA and I can start contributing to the 401k at the end of this month. Unfortunately, the employer match doesn't start until after my first year of employment. Would you suggest contributing more than the 5% or just enough to get the match. Also if I go with the target date fund would it be wise to keep the 3 fund portfolio in my IRA or change up
If you've gotten a late start, you really need to save as much as you possibly can, and a 401(k) plan is usually the best first account to max out if you don't have access to an HSA.
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Re: Late start investing

Post by AnnetteLouisan »

It’s awesome that you are doing so many smart things and making positive changes. I’d fund the 401k and then keep increasing the ten month emergency fund and buffer you wisely funded.
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Re: Late start investing

Post by ruralavalon »

kvee1967 wrote: Wed Sep 29, 2021 7:15 pm I've already contributed the $7000 max for 2021 to my IRA and I can start contributing to the 401k at the end of this month. Unfortunately, the employer match doesn't start until after my first year of employment. Would you suggest contributing more than the 5% or just enough to get the match. Also if I go with the target date fund would it be wise to keep the 3 fund portfolio in my IRA or change up
I suggest making more than just enough to get the employer match. Contribute as much add you can afford.

Your employer's 401k plan offers at least some good, very diversified, index funds with low expense ratios. Example: T. Rowe Price Equity Index 500 (PREIX) ER 0.19%.

What other funds are offered in your employer's 401k plan?

There is no reason I can see for you to limit yourself to just enough to get the full employer match.

In general it's best to make maximum possible use off all available tax-advantaged accounts as a priority ahead of investing in a taxable brokerage account.

Wiki article Prioritizing investments.

As I mentioned earlier in my opinion your desired asset allocation of
65% U.S. stocks,
15% international stocks, and
20% fixed income
is within the range of what is reasonable for your situation (age 54, late start, "haven't saved anything for retirement", etc.).
Last edited by ruralavalon on Thu Sep 30, 2021 6:35 am, edited 1 time in total.
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Re: Late start investing

Post by z3r0c00l »

Nice work on getting your financial life in order, don't even worry about being late to the game as most people never save significantly for retirement at all, you are ahead of the curve in doing so. Maxing out the 401K could get you $400,000+ in 10 years with a bit of stock market return in the mix, and well over 500,000 if you keep working a bit longer say to 67. I recommend contributing more than 5% if you can afford to do so, you can do up to $26,000 a year pre-tax at your age and I would use as much as possible, even consider working overtime or finding another part time gig to allow maxing out the savings. A conservative AA makes sense, something like 60% stocks 40% bonds.
70% Global Stocks / 30% Bonds
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Re: Late start investing

Post by kvee1967 »

If I only make about 32,000 annually should I use a traditional or Roth IRA
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Re: Late start investing

Post by AnnetteLouisan »

kvee1967 wrote: Fri Oct 01, 2021 9:13 pm If I only make about 32,000 annually should I use a traditional or Roth IRA
Roth, definitely, because the amount you contribute is deductible and you don’t ever pay taxes on the gains. It’s really a free ride.
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Re: Late start investing

Post by Flyer24 »

AnnetteLouisan wrote: Fri Oct 01, 2021 9:28 pm
kvee1967 wrote: Fri Oct 01, 2021 9:13 pm If I only make about 32,000 annually should I use a traditional or Roth IRA
Roth, definitely, because the amount you contribute is deductible and you don’t ever pay taxes on the gains. It’s really a free ride.
A Roth isn’t deductible. It is using after-tax money.
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Re: Late start investing

Post by kvee1967 »

What if I already contributed the 7000 max for this year, should I convert to the Roth
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Re: Late start investing

Post by ruralavalon »

I think the traditional versus Roth issue is an unnecessary distraction. (54 years old, "haven't saved anything for retirement".)

What you need to concentrate on now is making contributions to your employer's 401k plan, at as high a rate as you can manage.

What funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios.


kvee1967 wrote: Fri Oct 01, 2021 9:13 pm If I only make about 32,000 annually should I use a traditional or Roth IRA
Use a traditional IRA.

Clearly contributions to a traditional IRA are best for you. (54 years old, "haven't saved anything for retirement", eligible to deduct traditional IRA contributions.)

I see no reason for you to give up a tax deduction you can take. Traditional IRA contributions of $7,000 annually, if you are in the 12% tax bracket, give you $840 every year in tax savings which is money you can spend now or save for retirement as you wish.



kvee1967 wrote: Fri Oct 01, 2021 9:38 pm What if I already contributed the 7000 max for this year, should I convert to the Roth
I think it is great that you have already contributed the $7,000 annual IRA maximum for 2021.

No. Do NOT convert to a Roth IRA.

What is your current tax bracket, both federal and state? What is your tax filing status?

You may be in the 12% tax bracket, it depends on a lot of information we don't have (like tax filing status, deductions, tax credits, etc.) Look on your most recent tax return for your "taxable income", then use the number for "taxable income" to estimate your tax bracket here.

At $32,000 income, you will be eligible to deduct your contributions to the traditional IRA. IRS, "2021 IRA Deduction Limits - Effect of Modified AGI on Deduction if You Are Covered by a Retirement Plan at Work", link.

Clearly contributions to a traditional IRA are best for you.

I suggest that you NOT convert the traditional IRA to a Roth IRA. I see no benefit to doing a Roth IRA conversion. Your tax bracket during retirement will almost certainly be lower, so there is no tax benefit to converting to a Roth IRA.

What is your profession or occupation? Will you be eligible for both a significant pension and Social Security benefits? What do you believe your annual income might be in future years, before retiring?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Late start investing

Post by kvee1967 »

I want to thank everyone for all of the great feedback. I'm thinking of using the T. Rowe Price 2040 class b retirement fund for my 401k and also have a traditional IRA with VTI (70%),VXUS (10%) and BND (20%). I was wondering if I should reduce my bond holdings in my IRA since the retirement fund also holds bonds?
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Re: Late start investing

Post by ruralavalon »

kvee1967 wrote: Sat Oct 02, 2021 8:26 am I want to thank everyone for all of the great feedback. I'm thinking of using the T. Rowe Price 2040 class b retirement fund for my 401k and also have a traditional IRA with VTI (70%),VXUS (10%) and BND (20%). I was wondering if I should reduce my bond holdings in my IRA since the retirement fund also holds bonds?
In my opinion T. Rowe Price Retirement 2040 Trust (Class B) ER 0.36%, pdf fact sheet, is a very good choice for a fund to use in your employer's 401k plan.

You could reduce the bond allocation in your traditional IRA if you wish, but in my opinion 20% bonds is within the range of what is reasonable. The 2040 trust contains very little in bonds.
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Re: Late start investing

Post by hudson »

kvee1967 wrote: Thu Aug 12, 2021 7:19 pm I'm a 54 year old who has a made a lot of bad choices in my life. Due to these bad choices I haven't saved anything for retirement. I've recently turned my life in a positive direction. I just started a new job and they offer a 401k after 90 days of employment. After a year of employment they offer 100% match up to 5%. In the meantime I've opened a traditional IRA using the 3 fund portfolio with an 80/20 allocation. 65% VTI,15% VXUS and 20%VGIT. I was wondering should I wait until my year is up to start funding my 401k when the match kicks in or start at the 90 day point. The employer uses T Rowe Price where the fees are a little high. I've already saved a 6 month emergency fund as well as a 4 month expense buffer fund so that a large percentage of my pay can be used for investments. I would greatly appreciate any and all advice from the group.
Haven't saved for retirement: It's a great time to start. Consider maxing out everything possible, as possible, when possible including tax advantaged, Roth, and maybe IBonds. Of course go for low fees. I always ignored the match and went for the max....again depending on the fees.
If you haven't read these books, consider them: viewtopic.php?p=5372762#p5372762
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Re: Late start investing

Post by dunk1234 »

The best time to plant a tree is twenty years ago. The second best time is now!
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Re: Late start investing

Post by kvee1967 »

I have a traditional IRA since I'm in the 12% tax bracket. I have 70% VTI, 10% VXUS, 20% BND. I'm considering the T. Rowe. Price 2040 target date fund with a .40% expense ratio. I haven't decided if I'm going to contribute above the match yet. What are your opinions about VYM. What etfs would be good for a taxable account. I've already maxed out my IRA for 2021. Should I do the 2022 max before contributing to my other accounts? I greatly appreciate all feedback
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Re: Late start investing

Post by dratkinson »

kvee1967 wrote: Fri Oct 08, 2021 9:04 pm I have a traditional IRA since I'm in the 12% tax bracket. I have 70% VTI, 10% VXUS, 20% BND. I'm considering the T. Rowe. Price 2040 target date fund with a .40% expense ratio. I haven't decided if I'm going to contribute above the match yet. What are your opinions about VYM. What etfs would be good for a taxable account. I've already maxed out my IRA for 2021. Should I do the 2022 max before contributing to my other accounts? I greatly appreciate all feedback
Tax-advantaged vs taxable. A tax-advantaged account should grow faster than a taxed account. Assuming a large EF, I'd contribution the max to all tax-advantaged accounts, before contributing to taxable.



VTI vs VYM.

A first look. In a taxable account, more VTI should be preferable to VYM (High Dividend Yield). Why? VTI should be more tax-efficient because higher percentage of QDI income than VYM = less tax owed.

A second look, to try to account for tax bracket. SWAG...
--VTI SEC yield: 1.23%. $1K x 1.23 = 12.30 dividend (assume ~10% taxed at 12%) = 1.23 tax = 12.30 - 1.23 = 11.07 after-tax.
--VYM SEC yield: 2.84%. $1K x 2.84 = 28.4 dividend (assume 100% taxed at 12%) = 3.41 tax = 28.40 - 3.41 = 24.99 after-tax.

Lather, rinse, repeat with better QDI information for VTI/VYM and if you might enter the 22% tax bracket.
Repeat for tax code sunset and the return of 15%-25% tax brackets.

VYM looks okay by me for your 12% (and returning? 15%) tax bracket.


N.B. There have been new members who asked for help in undoing their high-dividend investment strategy because of the problems it caused them. I'm not aware of their situation/problem, but you can search for topics.



The 12% tax bracket is the perfect time to get into a rIRA. But delaying taxes is also good.

Yes rIRA. If you can live in retirement on withdrawals from your 401k+taxable to make it to SS, and won't need to withdraw from your IRA after SS, then I'd opt for a rIRA vs a tIRA, to turn off unneeded RMDs. Why? Paying 12% fed tax is cheap to get into a rIRA (+state tax).

Yes tIRA. But if you must withdraw from your 401K+taxable+IRA in retirement to make it to SS, then your IRA can be a tIRA. Why? Get the tax deduction today, and delay paying tax on needed withdrawals and remaining RMDs.



Taxable investing.

Equities. When you start taxable investing, VTI is recommended.


Bonds. Recall some retirees report keeping 5yrs liquid (savings, CDs, savings bonds, taxable bonds,...) to avoid the sequence of returns risk (SoRR)---having to sell equities to pay for living expenses in retirement in a down market. This assumes most markets recover within 4yrs. (There have been notable exceptions.) After market recovery, they sell bonds to refill equities.

BND/VBTLX is recommended for low tax brackets.

But! if you can withstand more risk, then VWLTX/VWLUX (LT national muni) is my preferred option. Why?

Solution in 12% fed tax bracket.
--VBTLX SEC yield: 1.33%.
--VWLTX SEC yield: 1.11%. Taxable-equivalent yield = SEC yield / (1-fed tax bracket) = 1.11 / (1-.12) = 1.26% TEY.
--VWLUX SEC yield: 1.19%. 1.19 / (.88) = 1.35% TEY

Solution in 15% fed tax bracket, if tax code sunsets.
--VBTLX SEC yield: 1.33%.
--VWLTX SEC yield: 1.11%. Taxable-equivalent yield = SEC yield / (1-fed tax bracket) = 1.11 / (1-.15) = 1.31% TEY.
--VWLUX SEC yield: 1.19%. 1.19 / (.85) = 1.40% TEY

There is a hidden benefit to using munis in a low tax bracket. What? Muni dividends are tax-exempt, do not add to fed taxable income, so do not push you toward a higher tax bracket. Taxable bond dividends do. This can become an issue when you have enough taxable distributions to push you into the next tax bracket... and cause your 0%-taxed QDI/LTCG dividends to be taxed at 12-15%. The TEY calculation misses this effect; to see it, you must create a sample tax return and switch between using taxable bond dividends and municipal bond tax-exempt dividends.

SS argument against munis. Muni dividends are added back to calculation SS taxation. So do taxable bond dividends. But since SS taxation is based on actual dollars (not taxable-equivalent dollars), and since taxable bond SEC yields are generally higher than muni SEC yields, taxable bonds affect SS taxation more than munis do. Bottom line: Don't sweat owning munis, if you decide to go this route.

N.B. The LT national muni is more risky than (IT) TBM. This risk can be seen in their 52wk price spreads---more fluctuation than TBM.

My limited experience with higher reward/risk (can't be separated) bonds.
--Rewards are typically stable. More risk (within reason) longer-durations pay more than shorter, including inverted-yield environments.
--Risk is typically infrequent, and can be TLH (tax-loss harvested). (I've TLH munis. It wasn't terrible.)



High dividend investing vs munis in taxable. Notice you have opposing forces at work.
--High dividend investing is reported to be less tax efficient and push you toward the next tax bracket, where QDI/LTCG are taxes.
--Munis do not push you toward next tax bracket, so protect QDI/LTCGs.

What to do? This is where creating sample tax returns can help answer your questions. You want to maximize after-tax income.

Student exercise. So what combination of: taxable bonds vs munis, tax-inefficient high-dividends equites vs tax-efficient lower dividend equities, does more to keep you in the 12-15% tax bracket, protect your 0%-taxed QDI/LTCGs, and results in more after-tax income? This student exercise should keep you off the streets, out of trouble, and entertained for a few days. :D



Your choice.
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Re: Late start investing

Post by ruralavalon »

kvee1967 --

Traditional contributions is the right choice for you, your decision to use a traditional account is correct.

The traditional versus Roth decision is very fact-sensitve, very individual.

kvee1967 wrote: Fri Oct 01, 2021 9:13 pm If I only make about 32,000 annually should I use a traditional or Roth IRA
I think the traditional versus Roth issue is an unnecessary distraction. (54 years old, "haven't saved anything for retirement".)

What you need to concentrate on now is making contributions to your employer's 401k plan, at as high a rate as you can manage. "If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA", wiki article "Prioritizing Investments", link.

In my opinion T. Rowe Price Retirement 2040 Trust (Class B) ER 0.36%, pdf fact sheet, is a very good choice for a fund to use in your employer's 401k plan. That is a good low-cost fund.

I think it's best to make maximum annual employee contributions to your employer's 401k plan as a priority ahead of more contributions to your traditional IRA. The 401k has the additional advantage of being funded by automatic deductions from payroll every pay period, which makes savings discipline easier.

Clearly traditional contributions are best for you. (54 years old, "haven't saved anything for retirement", eligible to deduct traditional IRA contributions.)

I see no reason for you to give up a tax deduction you can take. In the 12% tax bracket traditional IRA contributions of $7,000 annually (or an additional $7,000 in traditional 401k contributions of $7,000) gives you $840 every year in tax savings which is money you can spend now or save for retirement as you wish.

But as stated before I think it's best to make maximum annual employee contributions to your employer's 401k plan as a priority ahead of more contributions to your traditional IRA.

What is your profession or occupation? Will you be eligible for both a significant pension and Social Security benefits? What do you believe your annual income might be in future years, before retiring?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Late start investing

Post by wander »

ruralavalon wrote: Sat Oct 02, 2021 5:47 am No. Do NOT convert to a Roth IRA.
+1.
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Re: Late start investing

Post by kvee1967 »

I have a traditional IRA with 3 funds, VTI(70%), VXUS(10%), BND(20%). I was wondering if VYM or VIG would be a good addition and if so, what allocation would be good?
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Re: Late start investing

Post by ruralavalon »

Please make it a habit to use both fund names and ticker smbols, most people haven't memorized many tickers for funds they don't use themselves.

Please don't make members who may want to try to answer your questions have look up what you are talking about.

Vanguard High Dividend Yield ETF (VYM).

Vanguard Dividend Appreciation ETF (VIG).

kvee1967 wrote: Sun Oct 10, 2021 7:58 am I have a traditional IRA with 3 funds, VTI(70%), VXUS(10%), BND(20%). I was wondering if VYM or VIG would be a good addition and if so, what allocation would be good?
No, I don't think either ETF would be a good addition.

Both ETFs have high distributions, so if used need to be in a tax-advantaged account like an IRA.

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX), ETF share class (VTI), holds stocks of 3980 U.S. companies, vs. VYM 412, vs. VIG 247. So those dividend-focused ETFs add noting in the way of diversification.

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX), ETF share class (VTI) has had price appreciation YTD 15.10%, vs. VYM 15.25, vs. VIG 10.03%, so little or nothing gained there.

If we compare the regular mutual funds to get total return (price appreciation + dividends) we get total return YTD VTSAX 15.17%, vs. VHYAX 15.29%, vs. VDADX 10.06%, so little or nothing gained there.

On the Vanguard website for every regular mutual fund or exchange traded fund (ETF) there is a "compare" feature which lets you easily do side-by-side comparison of up to five different funds.
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