Pensions and retirement plans

[Ivo]

It is completely off-topic in a gaming forum, but I've seen some interesting discussions in the forum about financial issues.

Is anyone here well informed about pensions (defined benefits and such)? I will be starting a new job soon and for once I actually can make a decision about this kind of thing (in Europe it is usually compulsory). I could use some opinions because I'm in a rather specific corner case.

I would also be interested in reading about how others are planning their own retirements.

[racketboy]

I've been trying to load up my 401k (you guys probably have something different there) since my early 20s. Having my taxable income lowered is nice and earning a decent return helps to make sure you're taken care of.

There's plenty of charts out there that show the advantages of starting early.

What questions in particular do you have?

[Luke]

I plan on making more money during retirement than any time I was actively working. You have to have that mentality if you actually plan on retiring (comfortably).

Your best option is to plan for your retirement today, if you haven't already. Shop around for a financial advisor, aggressively at that, who isn't focused on selling you insurance. Set quantifiable goals, and demand them to be met.

Here's the challenge: Pretend you knew your total net worth. I mean down to the cent. Pretend you sold your house, your video game collection, cashed out your savings/checking/investments/money markets/401/change jar. Say you counted every penny to the decimal. You're going to need about fifty times that amount to retire.

It's a daunting task, but possible. I also say this with the caveat with my retirement being me enjoying life. I won't be visiting Paris, but I'd like to live the last years of my life living them to the fullest possible.

[racketboy]

I think a lot of it does come down to mindset....

I was fortunate (didn't know it at the time), that my parents made me put half of the money I earned as a kid into savings. It kinda stunk that I couldn't spend it on baseball cards of a Genesis cartridge, but it ended up helping me have money for a house down payment when I was done with college.

And since I was accustomed to setting aside money, I had the mentality that is wasn't hard to set aside a big chunk of my paycheck into a retirement account.

I realize that if your paycheck isn't much to begin with, it can be quite a challenge, but many times, you can adapt to having it slimmed down.

Also, if you employee has a percentage match of your retirement contributions. It's a great thing to shoot for -- otherwise, you're pretty much turning down free money.

[Ivo]

I wasn't thinking of discussing lifestyles but it also fits in the thread. With that in mind I am fairly low maintenance and having been happy living with rather small expenses (and fortunately fairly decent salaries, although I do work for them, and I have a significant drawback in that I have only fixed term contracts - which is increasingly causing me discomfort).

I agree with the "making money during retirement" mentality.
I mean the other mentality I guess is you estimate how long you live and save a large chunk X from where you start drawing from it until it dwindles (and hope you don't live longer than your money lasts, which also means hoping there are no expensive unforeseen circumstances).

But I have to say that I would like to make that money not by continuing to work (at least not in the sense of a full job) much beyond 65 years old - I would like to have more free time.
So I would like to be making money by investing a larger chunk Y (Y needs to be considerably larger than X would have to be, naturally).

The investment returns from Y would ideally be enough for my fairly modest lifestyle plus health expenses (expected from advanced age), while actually continuing to increase the chunk I have saved. Then I die and whatever I have accumulated is used toward some noble goal (where my wife and I decide what is "noble" for that purpose).

About Nick's remark on employer's matching pension contributions, the choice I have is related to this somewhat, and made a bit difficult due to tax benefits associated with pension deductions (where said deductions are then locked until retirement age).

[racketboy]

I don't know how good you are with spreadsheets, but I have one (that is probably overkill for most people) that projects my earnings, expenses, retirement date, and has me living to 100 years old (figured a nice round number)

[MrPopo]

Also, if you employee has a percentage match of your retirement contributions. It's a great thing to shoot for -- otherwise, you're pretty much turning down free money.

Definitely this. At bare minimum you want to put away as much as an employer will match, though you'll need to put away more to have a comfortable retirement (though you don't necessarily want to put that in a 401k, due to restrictions on when you can get back the money).

Another thing that'd be worthwhile is if you get raise to put away most (if not all) of it. You were used to living on X a year, so you won't miss the extra income.

[Nemoide]

I've maxed out the contribution limits for a Roth IRA since 2012. The way a Roth IRA works is that the money you are putting in post-tax money and when you're 60 years old, you can take everything out 100% tax free. With a traditional IRA, you put money in pre-tax and pay taxes on what you take out. I don't make a lot of money (and therefore don't pay a ton of taxes) and since I don't know what tax rates in the future might be, I like the Roth.
Obviously this only applies to the US.

As for what I invest in: I'm a big fan of Vanguard's Target Retirement funds (I go for the year 2050 because I'll be around 65 at that point which seems like a typical time for people to retire) and that forms the core of my portfolio. It's based on a couple core index funds and automatically readjusts itself to include a higher percentage of bonds as time goes on.

The real things to remember are that index funds are the best way to own stock in the long-term. It guarantees you the market average with costs far below actively managed funds or brokers. I recommend reading some books by John Bogle. Keeping your fees/expenses down makes a huge difference!

Another thing to know is that it's generally a bad idea to have ALL of your money in stocks. A good rule of thumb is to have a percentage of bonds equal to your age. So if you're 20 years old, you have 80% stock and 20% bonds and when you're 60 years old, you have 40% stock and 60% bonds. This is can be modified once your understanding of what these things mean increases. You might want 90% stock when you're 25 and that's not a bad plan.

One last rule of investment is dollar-cost averaging. Let's say you have $10,000 you want to invest in a specific fun. Instead of going all-in, you buy $1,000 of shares every month for 10 months. (Or maybe $500 every two weeks.) This results in you paying the average cost of that investment. This neutralizes the danger of putting your $10k in and having the price plummet 50% the next day, resulting in lost potential income.
Ideally you'd buy when everything is low, but predicting the market is a fool's errand more often than not and if you shoot for averages, you'll actually do better than most folks.

(Lastly it's probably worth pointing out that you shouldn't be 100% counting on an easy retirement. It's always possible that the global financial system could collapse and take your money with it, or global economic growth could grind to a halt causing your investments to stagnate: this would mean you would probably need to work in your old age. Don't take anything for granted, even if you're playing things safe/conservatively!)

[MrPopo]

It's always possible that the global financial system could collapse and take your money with it,

On the off chance of that happening I've been watching a lot of the Mad Max trilogy.

[J T]

I'm on a website about retro games talking about retirement plans. I'm old.